india daily, july 23, 2015 · per tower per annum remained around the `65,000 mark. we expect this...

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL.

Contents

Daily Alerts

Results

Bharti Infratel: 1QFY16 - marginal miss; surprise element to support rich valuations missing

IDEA: Retain estimates and remain positive

Bajaj Finserv: Bajaj Finance remains strong; Bajaj Life a tad better

JSW Energy: Demand weakness comes to the fore

Muthoot Finance: Growth on track, NIM weak

SKS Microfinance: Strong performance

PVR: Blockbuster quarter

Company alerts

Vedanta: Cairn merger - minorities in majority?

Sector alerts

Infrastructure: Rail operators - moving into sweet spot

INDIA DAILY July 23, 2015 India 22-Jul 1-day 1-mo 3-mo

Sensex 28,505 1.1 2.5 2.8

Nifty 8,634 1.2 3.0 2.8

Global/Regional indices

Dow Jones 17,851 (0.4) (1.6) (1.1)

Nasdaq Composite 5,172 (0.7) 0.2 2.3

FTSE 6,667 (1.5) (2.5) (5.5)

Nikkei 20,677 0.4 (0.6) 2.4

Hang Seng 25,415 0.5 (7.0) (8.7)

KOSPI 2,062 (0.1) (0.9) (5.1)

Value traded – India

Cash (NSE+BSE) 188 186 194

Derivatives (NSE) 3,093 3,854 3,856

Deri. open interest 2,550 2,459 2,445

Forex/money market

Change, basis points

22-Jul 1-day 1-mo 3-mo

Rs/US$ 63.7 13 9 42

10yr govt bond, % 8.1 1 13 31

Net investment (US$ mn)

21-Jul MTD CYTD

FIIs (25) 1,099 7,283

MFs (33) 237 5,125

Top movers

Change, %

Best performers 22-Jul 1-day 1-mo 3-mo

EIM IN Equity 21109.7 (1.1) 9.5 43.1

HPCL IN Equity 901.8 3.4 22.3 39.8

BJAUT IN Equity 2618.9 3.0 8.5 31.5

ABNL IN Equity 2033.4 3.8 15.3 26.5

UPLL IN Equity 546.2 0.6 (2.4) 24.9

Worst performers

UT IN Equity 7.2 2.1 (11.2) (56.3)

JPA IN Equity 11.5 1.8 (7.6) (53.0)

JSP IN Equity 77.3 (0.3) (17.6) (49.8)

VEDL IN Equity 136.1 (0.2) (22.9) (35.7)

HDIL IN Equity 88.6 1.9 (6.7) (26.9)

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

1QFY16 results marginally below estimates

Headline consolidated results missed our estimates marginally, with EBITDA and PAT lower than

estimated by around 2.5% each. The miss was marginal in terms of numbers, yet somewhat

material in the context of the steady business that BHIN is. Revenues of `30.2 bn, +6% yoy,

were in line with our expectations, with service rental revenues growing 9% yoy and energy

revenues growing by a muted 1.3% yoy. Muted growth in energy revenues, in our view,

reflects – (1) impact of lower diesel prices on pass-through contracts, and (2) likely downward

revision in contracted fixed charges (annual revision as new fiscal kicked in) on the fixed energy

contracts. We had expected muted energy revenue growth and hence, this did not come as a

surprise.

EBITDA grew 10% yoy but declined 3% qoq to Rs13 bn missing our estimated `13.3 bn by

2.5%. EBITDA margins, that were propped up by some one-off cost write backs and higher-

than-normal energy spread in 4QFY15, normalized to 43%, down 240 bps qoq but up 150 bps

yoy. Ex-energy margins were stable at around 66% while energy margins normalized to 5%

from 11% in 4QFY15. Recurring PAT of `5.76 bn (up 24% yoy) came in 2.4% below our

expected `5.9 bn, despite higher than expected other income.

Solid asset, but valuations too rich for our liking

BHIN’s results, despite the marginal miss on EBITDA, were broadly in sync with our view of the

business – (1) BHIN is a high-single-digit EBITDA growth story in the medium term; near-term

growth may be propped up by R-Jio network rollout but will normalize soon, and (2) tenancy

growth for the next 2-3 years will be driven primarily by 2G network expansion of Idea/

Vodafone and fresh 4G tenancy accretion from R-Jio, and (3) bulk of 3G/4G expansion by

incumbents (Bharti, Vodafone, and Idea) will show up in the form of loading for BHIN;

incremental tenancy addition on this count will likely be immaterial for the next 2-3 years and

by the time it becomes material, 2G expansion will likely stop being a source of fresh tenancies.

The last aspect of the above is where we differ from the Street. We continue to find BHIN a

solid, but over-valued, asset. We do not see any scope for meaningful upgrades to our FCF

forecasts in the DCF nor are we comfortable ascribing a sub-10% WACC to this net cash

company. We therefore see the CMP as overstretched already. Our SELL rating on the stock

stays. We shall update our earnings model post the earnings call.

Bharti Infratel (BHIN) Telecom

1QFY16 – marginal miss; surprise element to support rich valuations missing.

BHIN’s 1QFY16 headline numbers were marginally below our expectations, with

services revenue and EBITDA increasing by 9.2% and 10% respectively. Free cash

generation was strong at 63.8% of EBITDA aided by a swing in working capital and

lower taxes. We continue to find the asset strong on fundamentals but overvalued. We

still do not see any strong reason to change our stance. Reiterate SELL.

SELL

JULY 23, 2015

RESULT

Coverage view: Cautious

Price (`): 458

Target price (`): 350

BSE-30: 28,505

Bharti Infratel

Stock data Forecasts/Valuations 2015 2016E 2017E

52-week range (Rs) (high,low) EPS (Rs) 10.5 13.5 16.2

Market Cap. (Rs bn) EPS growth (%) 31.0 28.1 20.0

Shareholding pattern (%) P/E (X) 43.6 34.0 28.3

Promoters 71.7 Sales (Rs bn) 116.7 128.8 144.9

FIIs 24.3 Net profits (Rs bn) 19.9 25.5 30.6

MFs 0.1 EBITDA (Rs bn) 50.0 56.4 64.7

Price performance (%) 1M 3M 12M EV/EBITDA (X) 16.9 15.0 13.0

Absolute (5.0) 24.6 71.0 ROE (%) 11.4 14.8 17.2

Rel. to BSE-30 (7.6) 22.0 56.1 Div. Yield (%) 2.4 2.0 2.5

Company data and valuation summary

505-243

868.9

Bharti Infratel Telecom

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Operational and financial performance

Tower and tenancy additions – At a consolidated (100% of BHIN standalone + 42% of

Indus) level, tower base grew 3% yoy (to 86,397) while tenancy base grew 8.7% yoy (to

185,215). Tenancy ratio inched up marginally to 2.14 from 2.12 at end-4QFY15 and 2.03

at end-1QY15.

Tower expansion was in line with our expectations; however, tenancies fell 1.4% short of

estimates. We understand that R-Jio tenancy accretion was slow relative to the past two

quarters; this may not be a reflection of R-Jio’s overall rollout pace and may just be a

function of lower BHIN share of these tenancies in 1QFY16.

Rentals – Consolidated rentals were up 0.6% qoq and 0.3% yoy at `34,201 per tenant

per month, reflecting benefits of strong incremental 3G/4G loading revenues during the

quarter.

Tenancy and rental movements were both in line with our broad construct – that

the bulk of 3G/4G network expansion by the incumbents would be in the form of loading

and not fresh sites for the next 2-3 years (Idea management too corroborated our

view on this aspect in their 1QFY16 earnings call).

Capex – capex for 1QFY16 stood at `5 bn, broadly in line with quarterly capex levels seen

over the past six quarters. Maintenance capex was `1.4 bn as implied maintenance capex

per tower per annum remained around the `65,000 mark. We expect this number to

trend up over time to a `80,000-90,000 level, if not slightly higher. Implied upgrade

capex per incremental tenancy (upgrade capex defined as total capex less reported

maintenance less estimated new tower capex) was a meaningful `0.72 mn for the

quarter. This number has hovered in the `0.5-0.8 mn vicinity with the variance driven

perhaps by the extent of incremental loading in a quarter.

FCF – FCF generation was strong at `8.3 bn (63.8% of EBITDA), aided by positive swing

in net working capital (of `2.23 bn) and lower cash taxes. 4QFY15 had a negative

working capital swing of nearly the same magnitude; we understand that these swings

are on account of the company paying municipal and other taxes for the month of March

in March itself unlike other months when it pays in the following month. 4Q FCF is

understated and 1Q FCF is overstated to that extent; over a two-quarter time frame,

working capital change was marginal. On a TTM basis, FCF/EBITDA stood at 39%, good

but sub-par, in our view. Net cash, adjusted for unpaid dividends, stood at `36.3 bn, an

increase of roughly `9 bn qoq.

Telecom Bharti Infratel

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Exhibit 1: Bharti Infratel - 1QFY16 review, March fiscal year-ends (Rs mn)

Source: Company, Kotak Institutional Equities

Rs mn 1QFY15 4QFY15 1QFY16 QoQ YoY 1QFY16E vs KIE (%)

Revenues 28,427 29,467 30,157 2.3 6.1 30,211 (0.2)

Costs

Power and fuel (10,566) (9,835) (10,733) 9.1 1.6 (10,600) 1.3

Rent (2,255) (2,496) (2,556) 2.4 13.3 (2,400) 6.5

Employee expenses (973) (1,033) (1,017) (1.5) 4.5 (1,060) (4.1)

Others (2,843) (2,734) (2,880) 5.3 1.3 (2,850) 1.1

Total (16,637) (16,098) (17,186) 6.8 3.3 (16,910) 1.6

EBITDA 11,790 13,369 12,971 (3.0) 10.0 13,301 (2.5)

Net revenues (ex power and fuel) 17,861 19,632 19,424 (1.1) 8.8 19,611 (1.0)

EBITDA margin (%, on gross) 41.5 45.4 43.0 44.0

EBITDA margin (%, on net) 66.0 68.1 66.8 67.8

D&A - net (5,253) (5,608) (5,571) (0.7) 6.1 (5,500) 1.3

EBIT 6,537 7,761 7,400 (4.7) 13.2 7,801 (5.1)

Net finance costs and other income 388 1,040 1,493 43.6 284.8 1,200 24.4

PBT 6,925 8,801 8,893 1.0 28.4 9,001 (1.2)

Provision for taxes (2,297) (3,226) (3,136) (2.8) 36.5 (3,105) 1.0

PAT 4,628 5,575 5,757 3.3 24.4 5,896 (2.4)

Exceptional items — —

Net income 4,628 5,575 5,757 3.3 24.4 5,896 (2.4)

# of shares 1,889 1,894 1,896 1,894

EPS (Rs/share) 2.45 2.94 3.04 3.2 23.9 3.11

Margins (%)

EBITDA (on gross) (%) 41.5 45.4 43.0 44.0

EBITDA (on net) (%) 66.0 68.1 66.8 67.8

EBIT (on gross) (%) 23.0 26.3 24.5 25.8

EBIT (on net) (%) 36.6 39.5 38.1 39.8

PAT (on gross) (%) 16.3 18.9 19.1 19.5

PAT (on net) (%) 25.9 28.4 29.6 30.1

Effective tax rate (%) 33.2 36.7 35.3 34.5

Key operating metrics

Consol revenue break-up (Rs mn)

Service revenues 17,271 18,419 18,854 2.4 9.2 18,911 (0.3)

Energy reimbursements 11,156 11,048 11,303 2.3 1.3 11,300 0.0

Gross revenues 28,427 29,467 30,157 2.3 6.1 30,211 (0.2)

Consolidated metrics

Total towers (#) 83,778 85,892 86,397 0.6 3.1 86,535 (0.2)

Total tenants (#) 170,320 182,294 185,215 1.6 8.7 187,838 (1.4)

Tenancy ratio (end-period) 2.03 2.12 2.14 1.0 5.4 2.17 (1.2)

Sharing revenue per tower (Rs/month) 68,886 71,828 72,955 1.6 5.9 72,845 0.2

Sharing revenue per operator (Rs/month) 34,113 34,011 34,201 0.6 0.3 33,559 1.9

Bharti Infratel - standalone

Total towers (#) 36,112 37,196 37,486 0.8 3.8 37,500 (0.0)

Total tenants (#) 70,544 75,819 77,292 1.9 9.6 78,000 (0.9)


Sharing revenue per tower (Rs/month) 72,159 74,382 75,270 1.2 4.3 75,678 (0.5)

Sharing revenue per operator (Rs/month) 37,204 36,630 36,714 0.2 (1.3) 36,750 (0.1)

Indus towers

Total towers (#) 113,490 115,942 116,454 0.4 2.6 116,750 (0.3)

Total tenants (#) 237,562 253,513 256,960 1.4 8.2 261,520 (1.7)


Sharing revenue per tower (Rs/month) 66,706 70,370 71,311 1.3 6.9 71,160 0.2

Sharing revenue per operator (Rs/month) 32,075 32,371 32,465 0.3 1.2 32,150 1.0

Change (%)



Exhibit 2: BHIN – key operational metrics

Source: Company

Exhibit 3: BHIN – condensed cash-flow statement


Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

Consolidated financial metrics (Rs mn)

Service revenues 16,084 16,218 16,552 16,936 17,271 17,583 17,988 18,419 18,854

Energy reimbursements 10,136 10,619 10,759 10,963 11,156 11,718 11,500 11,048 11,303

Gross revenues 26,220 26,837 27,311 27,899 28,427 29,301 29,488 29,467 30,157

EBITDA 10,463 10,729 11,283 11,526 11,790 12,151 12,731 13,369 12,971

EBIT 4,935 5,403 6,031 6,373 6,537 6,731 7,165 7,761 7,400

PBT 5,447 4,637 6,156 6,708 6,925 7,104 7,685 8,801 8,893

PAT 3,576 2,774 4,105 4,440 4,628 4,652 5,069 5,575 5,757

Total capex 3,062 2,906 3,669 5,631 4,798 4,601 5,758 5,651 5,037

Maintenance capex 1,028 899 983 1,161 1,491 1,243 1,065 1,317 1,426

Simple FCF 6,640 7,367 7,076 5,388 6,469 7,249 6,729 7,464 7,828

Adjusted funds from operations (AFFO) 8,674 9,374 9,762 9,858 9,776 10,607 11,422 11,798 11,439

Bharti Infratel - Standalone

Total towers (#) 35,288 35,376 35,515 35,905 36,112 36,381 36,747 37,196 37,486

Towers added 169 88 139 390 207 269 366 449 290

Total tenants (#) 64,345 65,391 66,871 69,137 70,544 72,597 74,331 75,819 77,292

Gross tenancy addition 823 1,046 1,480 2,266 1,407 2,053 1,734 1,488 1,473

Net tenancy addition 772 1,046 1,480 2,266 1,407 2,053 1,734 1,488 1,473

Tenancy ratio (end-period) 1.82 1.85 1.88 1.93 1.95 2.00 2.02 2.04 2.06

Sharing revenue per tower (Rs/month) 67,399 68,720 70,982 71,119 72,159 73,202 73,825 74,382 75,270

Sharing revenue per operator (Rs/month) 37,097 37,430 38,046 37,346 37,204 37,073 36,744 36,630 36,714

Indus towers

Total towers (#) 111,983 112,144 112,615 113,008 113,490 114,101 115,040 115,942 116,454

Towers added 164 161 471 393 482 611 939 902 512

Total tenants (#) 223,078 225,252 229,760 233,488 237,562 242,079 248,611 253,513 256,960

Gross tenancy addition 1,809 2,769 4,508 3,728 4,074 4,517 6,532 4,902 3,447

Net tenancy addition 1,567 2,174 4,508 3,728 4,074 4,517 6,532 4,902 3,447

Tenancy ratio (end-period) 1.99 2.01 2.04 2.07 2.09 2.12 2.16 2.19 2.21

Sharing revenue per tower (Rs/month) 63,717 63,283 63,745 66,001 66,706 67,554 68,802 70,370 71,311

Sharing revenue per operator (Rs/month) 32,075 31,636 31,488 32,145 32,075 32,055 32,129 32,371 32,465

1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16

EBITDA 10,463 10,759 11,298 11,598 11,851 12,201 12,761 13,295 13,021

- capex (3,062) (2,906) (3,669) (5,631) (4,798) (4,601) (5,758) (5,651) (5,037)

- revenue equalization (861) (600) (619) (606) (632) (407) (341) (261) (223)

+ rent equalization 100 114 66 27 48 56 67 81 67

Simple FCF 6,640 7,367 7,076 5,388 6,469 7,249 6,729 7,464 7,828

Change in NWC (453) 1,820 285 (492) 1,378 (861) 182 (2,049) 2,232

Taxes (152) (1,352) (1,076) (1,765) (1,647) (2,022) (2,361) (2,389) (1,751)

FCF 6,035 7,835 6,285 3,131 6,200 4,366 4,550 3,026 8,309

FCF/EBITDA (%) 57.7 72.8 55.6 27.0 52.3 35.8 35.7 22.8 63.8



Exhibit 4:BHIN – energy spread trends

Source: Company

Exhibit 5: BHIN Tower economics


Rs mn Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

Energy reimbursements 10,136 10,619 10,759 10,963 11,156 11,718 11,500 11,048 11,303

Power and fuel costs (9,990) (10,407) (10,302) (9,921) (10,566) (11,009) (10,540) (9,835) (10,733)

Spread 146 212 457 1,042 590 709 960 1,213 570

Incremental energy spread (356) 66 245 585 (452) 119 251 253 (643)

Incremental EBITDA 414 266 554 243 264 361 580 638 (398)

Incremental spread as % of

incremental EBITDA(86.0) 24.8 44.2 240.7 (171.2) 33.0 43.3 39.7 161.6

Pure service (ex-energy) EBITDA

margin (%)64.1 64.8 65.4 61.9 64.8 65.1 65.4 66.0 65.8

Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

Rs '000/tower

Revenue 319 326 330 336 340 349 348 345 350

Service revenues 196 197 200 204 207 209 212 215 219

Energy reimbursements 123 129 130 132 133 139 136 129 131

Overall costs (192) (195) (194) (197) (199) (204) (198) (188) (200)

Power and fuel expenses (122) (126) (125) (119) (126) (131) (124) (115) (125)

Rental cost (26) (27) (28) (27) (27) (28) (28) (29) (30)

Employee expenses (11) (11) (11) (11) (12) (12) (12) (12) (12)

Other expenses (33) (31) (31) (39) (34) (34) (33) (32) (33)

EBITDA 127 130 137 139 141 145 150 156 151

Depreciation (67) (65) (64) (62) (63) (64) (66) (66) (65)

Finance charges 6 (9) 2 4 5 4 6 12 17

PBT 66 56 74 81 83 85 91 103 103

PAT 44 34 50 53 55 55 60 65 67

Maintenance capex (13) (11) (12) (14) (18) (15) (13) (15) (17)

AFFO 106 114 118 119 117 126 135 138 133

Simple FCF 81 89 86 65 77 86 79 87 91



Exhibit 6: Bharti Infratel - standalone interim financials, March fiscal year-ends (Rs mn)


Rs mn 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 QoQ YoY

Revenues 13,229 13,693 13,594 13,373 13,875 3.8 4.9

Costs

Power and fuel (5,000) (5,269) (5,010) (4,564) (5,012) 9.8 0.2

Rent (647) (683) (686) (715) (725) 1.4 12.1

Employee expenses (603) (598) (616) (627) (643) 2.6 6.6

Others (1,285) (1,309) (1,203) (1,134) (1,333) 17.5 3.7

Total (7,535) (7,859) (7,515) (7,040) (7,713) 9.6 2.4

EBITDA 5,694 5,834 6,079 6,333 6,162 (2.7) 8.2

Net revenues (ex power and fuel) 8,229 8,424 8,584 8,809 8,863 0.6 7.7

EBITDA margin (%, on gross) 43.0 42.6 44.7 47.4 44.4

EBITDA margin (%, on net) 69.2 69.3 70.8 71.9 69.5

D&A - net (2,736) (2,757) (2,851) (2,878) (2,864) (0.5) 4.7

EBIT 2,958 3,077 3,228 3,455 3,298 (4.5) 11.5

Net finance costs and other income 10,289 3,493 861 5,376 1,904 (64.6) (81.5)

PBT 13,247 6,570 4,089 8,831 5,202 (41.1) (60.7)

Provision for taxes (1,180) (1,298) (1,350) (1,657) (1,825) 10.1 54.7

PAT 12,067 5,272 2,739 7,174 3,377 (52.9) (72.0)

Exceptional items — —

Net income 12,067 5,272 2,739 7,174 3,377 (52.9) (72.0)

# of shares 1,889 1,890 1,891 1,894 1,896

EPS (Rs/share) 6.39 2.79 1.45 3.79 1.78 (53.0) (72.1)

Margins (%)

EBITDA (on gross) (%) 43.0 42.6 44.7 47.4 44.4

EBITDA (on net) (%) 69.2 69.3 70.8 71.9 69.5

EBIT (on gross) (%) 22.4 22.5 23.7 25.8 23.8

EBIT (on net) (%) 35.9 36.5 37.6 39.2 37.2

PAT (on gross) (%) 91.2 38.5 20.1 53.6 24.3

PAT (on net) (%) 146.6 62.6 31.9 81.4 38.1

Effective tax rate (%) 8.9 19.8 33.0 18.8 35.1

Change (%)



Exhibit 7: Indus Towers - interim financials, March fiscal year-ends (Rs mn)


Exhibit 8: Upgrade capex is a meaningful part of total capex


Rs mn 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 QoQ YoY

Revenues 36,200 37,176 37,843 38,319 38,767 1.2 7.1

Costs

Power and fuel (13,252) (13,667) (13,167) (12,550) (13,621) 8.5 2.8

Rent (3,829) (3,895) (4,057) (4,240) (4,360) 2.8 13.9

Employee expenses (881) (933) (917) (967) (890) (7.9) 1.1

Others (3,724) (3,640) (3,864) (3,810) (3,683) (3.3) (1.1)

Total (21,686) (22,136) (22,005) (21,567) (22,555) 4.6 4.0

EBITDA 14,514 15,040 15,838 16,752 16,212 (3.2) 11.7

Net revenues (ex power and fuel) 22,948 23,510 24,676 25,769 25,145 (2.4) 9.6

EBITDA margin (%, on gross) 40.1 40.5 41.9 43.7 41.8

EBITDA margin (%, on net) 63.2 64.0 64.2 65.0 64.5

D&A - net (5,993) (6,340) (6,464) (6,500) (6,445) (0.8) 7.5

EBIT 8,521 8,700 9,374 10,252 9,767 (4.7) 14.6

Net finance costs and other income (931) (1,017) (812) (312) (979) 213.7 5.1

PBT 7,590 7,683 8,562 9,940 8,788 (11.6) 15.8

Provision for taxes (2,660) (2,748) (3,014) (3,736) (3,121) (16.4) 17.4

PAT 4,931 4,936 5,548 6,205 5,667 (8.7) 14.9

Exceptional items — — — — —

Net income 4,931 4,936 5,548 6,205 5,667 (8.7) 14.9

# of shares 1,888 1,888 1,888 1,888 1,888

EPS (Rs/share) 2.61 2.61 2.94 3.29 3.00 (8.7) 14.9

Margins (%)

EBITDA (on gross) (%) 40.1 40.5 41.9 43.7 41.8

EBITDA (on net) (%) 63.2 64.0 64.2 65.0 64.5

EBIT (on gross) (%) 23.5 23.4 24.8 26.8 25.2

EBIT (on net) (%) 37.1 37.0 38.0 39.8 38.8

PAT (on gross) (%) 13.6 13.3 14.7 16.2 14.6

PAT (on net) (%) 21.5 21.0 22.5 24.1 22.5

Effective tax rate (%) 35.0 35.8 35.2 37.6 35.5

Change (%)

Rs mn 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16

Total Capex (Rs mn) 4,798 4,601 5,758 5,651 5,037

Of which, maintenance capex (Rs mn) 1,491 1,243 1,065 1,317 1,426

Implied 'growth' capex (Rs mn) 3,307 3,358 4,693 4,334 3,611

# of towers added (#) 409 526 761 828 505

Assumed capex per new tower (Rs mn) 3.00 3.00 3.00 3.00 3.00

Capex on new towers (Rs mn) 1,228 1,577 2,283 2,484 1,515

Implied 'upgrade capex' 2,079 1,781 2,410 1,850 2,096

Upgrade capex per upgrade tenancy (Rs mn) 0.67 0.45 0.54 0.52 0.72


Management commentary reassuring; concerns on Jio and spectrum valid, but overdone

In a detailed post-earnings call, Idea management (1) was candid about its disappointment on

slight deceleration in data revenue growth trajectory in 1QFY16, (2) took pains to explain the

drivers for the increase in capex guidance, (3) reiterated its higher-than-peers confidence on the

still substantial volume growth potential in the voice market, and (4) detailed the reasons for

the company’s confidence in its ability to participate strongly in the evolving solid hi-speed data

growth story. We have been believers in the Idea story for long and see no reasons to change

our stance, despite Street’s concerns on R-Jio launch and on Idea’s data spectrum footprint.

On concerns over R-Jio entry, we strongly believe that the medium to long-term interests of R-

Jio (assuming it wants a viable business case within a reasonable timeframe) are closely aligned

to that of the incumbents (Bharti, Vodafone, and Idea). As for spectrum footprint (weak data

worries), we do not concur with some sections of the Street who see this as a cause of concern.

Idea’s spectrum footprint has to be viewed in the context of the company’s skewed revenue

footprint (top-10 circles contribute 79% of revenues) and analysis has to be done circle-wise.

We believe Idea has its fair share of 3G/4G spectrum in circles that matter and future will

provide ample opportunities (auctions, spectrum trading as and when permitted) to shore up

spectrum footprint.

Idea has smartly executed its just-in-time investment approach (on spectrum and network) in

the past and proved naysayers wrong (remember the voice capacity crunch concerns of 2012?).

There is of course the risk of execution slippage. However, this is a risk that applies to

companies in all sectors; more importantly, if asked to pick one Indian telco from an execution

standpoint, we would have no second thoughts on picking Idea.

Broadly retain estimates; reiterate BUY

Exhibit 1 shows the key changes to our FY2016-18E forecasts for Idea. We have raised our

revenue and capex forecasts and broadly retained our EBITDA and PAT forecasts. Our DCF-

based target price on the stock (adjusted for one-time retrospective spectrum payout demand)

stays unchanged at `220/share. BUY rating and preferred pick status stays.

IDEA (IDEA) Telecom

Retain estimates and remain positive. Idea management’s commentary on 1QFY16

earnings call was reassuring on nearly all counts. The company remains the best bet on

improving fundamentals of the Indian wireless industry, in our view. We expect Idea to

garner its fair share of the expected data market growth, Street’s concerns on the

company’s data spectrum footprint notwithstanding. We broadly retain our forecasts

and reiterate BUY with an unchanged target price of `220/share.

BUY

JULY 23, 2015

RESULT


Price (`): 179


BSE-30: 28,505

IDEA



Market Cap. (Rs bn) EPS growth (%) 48.6 3.6 (31.0)




MFs 1.9 EBITDA (Rs bn) 107.9 133.3 155.8


Absolute 2.2 (3.8) 22.0 ROE (%) 16.0 13.4 8.5

Rel. to BSE-30 (0.6) (5.9) 11.4 Div. Yield (%) 0.4 0.6 0.9


204-138

644.2

Telecom IDEA


Exhibit 1: Key changes to Idea earnings model, March fiscal year-ends, FY2016-18E (Rs mn)

Source: Kotak Institutional Equities estimates

Detailed takeaways from the earnings call

Idea’s management, as usual, was highly responsive in addressing analyst/investor queries. It

discussed at length the thought process behind recent decisions taken by them. Below are a

few key aspects discussed.

LTE rollout and increased capex: The management emphasized that Idea is and was an

ROI focused company and based on its observations in the past few months it saw a

business case in advancing LTE rollouts. It cited the rapid uptake of 4G devices,

convergence between prices of 3G and 4G equipment and increasing willingness of

consumers as key drivers for advancing LTE rollout.

Cannibalization of legacy voice and SMS revenue streams: The company said that it

was witnessing SMS cannibalization due to OTT applications. However, voice

cannibalization is insignificant and is expected to remain at the same level. The

management indicated that only about 0.1-0.2% of the total voice traffic were carried on

VoIP. It also pointed out that even in developed markets (offering limited bundled

services), only about 1.5-2.5% of traffic was on VoIP. We also do not see VoIP becoming

a meaningful threat to traditional voice at least in the near future.

Data revenue trajectory: The management indicated that data volume growth

trajectory was broadly intact and marginal slowdown in upward data revenue growth

was due to lower data realizations. This was majorly driven by the increase in service

charge to 14% (as the company found it difficult to pass these through), lowering

breakage, and increased uptake of promotional packs.

Loading vs. new site rollouts for 3G/4G network expansion: The company said 3G

sites would largely be co-located for the next few years and did not see the need for

more than 1-2% standalone 3G sites. 4G sites would be100% co-located for a few years.

VAS/other revenues: The management said the sharp uptick in VAS revenue trajectory

was mostly a one-off and driven by additional revenue from IPL-related VAS and gaming.

Increase in ICR revenue also contributed to an extent.

2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E

Consolidated

Revenues (Rs mn) 363,314 415,786 468,791 351,720 402,578 447,933 3.3 3.3 4.7

EBITDA (Rs mn) 133,292 155,788 178,015 131,624 154,768 175,898 1.3 0.7 1.2

EBIT (Rs mn) 66,255 69,425 81,775 65,239 69,480 82,088 1.6 (0.1) (0.4)

Net income (Rs mn) 32,830 22,639 29,718 33,813 23,286 29,907 (2.9) (2.8) (0.6)

EPS (Rs/share) 9.13 6.29 8.26 9.40 6.47 8.31 (2.9) (2.8) (0.6)

EBITDA margin (%) 36.7 37.5 38.0 37.4 38.4 39.3 -74 bps -98 bps -130 bps

Capex (Rs bn) 108 114 95 100 101 77 8.0 13.1 24.3

Ex-spectrum capex (Rs bn) 68 74 75 60 61 57 13.4 21.7 32.9

Wireless metrics

Volumes (bn min) 788 855 898 762 806 838 3.4 6.1 7.1

RPM (paise/min) 0.455 0.481 0.517 0.455 0.493 0.528 0.1 (2.5) (2.1)

ARPU (Rs/sub/month) 180 190 203 173 182 191 4.1 4.5 5.8

Revised Earlier Change (%)

IDEA Telecom


New circles: The management said that for any circle to be profitable Idea would need at

least 10% revenue market share which it has not been able to achieve in its new circles.

Moreover, there was up-fronting of investments in these circles in 2014 which led to

losses at the EBITDA level. It also mentioned that although it was gaining traction in

voice-centric markets like West Bengal, it was facing issues in some non-3G emerging

circles which are changing from voice-centricity to voice-data centricity.

Network infrastructure: The company said that it was deploying 2G BTS which are

capable of running two or more technologies at minimal incremental cost. On the fiber

side, it is increasing investments by increasing the number of fiber hops from 1 hop for 8

sites to 1 for 4 sites. It indicated that while about 13-14% of the total sites are fiberized,

in the next two years almost all 3G/4G sites would be fiberized. It also mentioned that the

current capacity utilization of data sites was in the range of 50-60%.

Exhibit 2: Idea Cellular's condensed financial statements, March year ends, 2013-2018E

Source: Company, Kotak Institutional Equities estimates

2013 2014E 2015E 2016E 2017E 2018E

Profit model (Rs mn)

Revenue 224,575 265,187 315,709 363,314 415,786 468,791

EBITDA 60,044 83,335 107,934 133,292 155,788 178,015

EBIT 25,266 38,141 54,898 66,255 69,425 81,775

Net interest income / (expense) (9,495) (7,700) (5,822) (15,747) (34,596) (36,054)

Tax (5,664) (10,764) (17,397) (17,678) (12,190) (16,002)

Recurring Net profit 10,107 19,676 31,679 32,830 22,639 29,718

Fully diluted EPS 3.05 5.93 8.81 9.13 6.29 8.26

Balance sheet (Rs mn)

Cash 11,709 4,036 130,804 21,974 14,053 39,865

Other current assets 51,660 51,324 67,061 79,837 91,876 105,145

Fixed assets 225,091 332,827 548,661 562,761 334,919 326,346

Other long term assets 75,320 77,387 142,261 169,258 424,723 432,467

Short tem debt 22,391 25,065 — — — —

Other current liabilities 69,110 75,823 86,769 103,300 118,876 136,045

Long term debt 118,047 181,284 552,711 452,711 452,711 452,711

Other long term liabilities 11,180 18,133 19,015 19,015 19,015 19,015

Shareholders funds (incl. minorities) 143,053 165,270 230,292 258,805 274,968 296,051

Free cash flow (Rs mn)

EBITDA 60,044 83,335 107,934 133,292 155,788 178,015

Change in working capital 92 7,049 (4,790) 3,755 3,538 3,900

Cash tax (paid) (3,864) (10,764) (17,397) (17,678) (12,190) (16,002)

Capex on PP&E and intangibles (49,131) (68,421) (347,675) (108,135) (113,985) (95,411)

Miscellaneous items 5,664 13,489 13,679 — — —

Free cash flow 12,804 24,688 (248,250) 11,234 33,151 70,501

Ratios (%)

Sales growth 14.9 18.1 19.1 15.1 14.4 12.7

EBITDA growth 17.9 38.8 29.5 23.5 16.9 14.3

EPS growth 39.6 94.4 48.6 3.6 (31.0) 31.3

FCF growth NM 92.8 (1,105.5) (104.5) 195.1 112.7

EBITDA margin 26.7 31.4 34.2 36.7 37.5 38.0

Net margin 4.5 7.4 10.0 9.0 5.4 6.3

RoAE 7.4 12.8 16.0 13.4 8.5 10.4

ROAE (excl. cash and int. income) 7.1 11.9 16.9 15.2 8.1 10.1

RoACE 6.9 8.9 10.9 9.5 9.6 11.1

ROACE (excl. cash and int. income) 6.9 8.9 11.1 10.0 9.7 11.3

Net debt/EBITDA (X) 2.1 2.4 3.9 3.2 2.8 2.3

Net debt/equity (X) 0.9 1.2 1.8 1.7 1.6 1.4

Total debt/capital (X) 1.0 1.2 2.4 — — —

Telecom IDEA


Exhibit 3: Our Mar 2017 DCF-based fair value for Idea's core business is Rs229/share


Exhibit 4: Target price derivation for Idea


2014 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

EBITDA 83.3 107.9 133.3 155.8 178.0 206.2 237.6 271.4 309.4 351.0 396.1 447.8 507.2

Tax (13.5) (19.5) (23.2) (24.3) (28.6) (35.9) (44.8) (54.9) (66.6) (78.4) (92.7) (109.3) (128.7)

Change in working capital 7.0 (4.8) 3.8 3.5 3.9 3.9 4.5 5.0 5.6 6.3 6.9 7.5 8.3

Post-tax operating cash flow 76.9 83.7 113.9 135.0 153.3 174.2 197.4 221.5 248.4 278.9 310.3 345.9 386.7

Capex (68.4) (347.7) (108.1) (114.0) (95.4) (75.1) (78.7) (149.5) (86.4) (92.0) (98.1) (104.8) (250.4)

Free cash flow 8.5 (264.0) 5.7 21.0 57.9 99.1 118.7 72.0 162.0 186.8 212.1 241.2 136.3

WACC and terminal growth assumptions

PV of cash flows 717.2 Calculation of weighted average cost of capital (WACC) 12.0

PV of terminal value 562.2 Equity/Capital (%) 55.0

EV 1,279.4

Net debt 438.7

Terminal year spectrum capex charge (17.8)

Equity value (Rs bn) 822.9

Equity value (US$ bn) 14.2

Shares outstanding (bn) 3.6

Equity value (Rs/Idea share) 229

Exit FCF multiple (X) 11.4

Exit EBITDA multiple (X) 4.6

Key assumptions (%)

Revenue growth 18.1 19.1 15.1 14.4 12.7 13.1 12.7 12.7 12.5 12.3 11.8 11.7 11.4

EBITDA growth 38.8 29.5 23.5 16.9 14.3 15.8 15.2 14.2 14.0 13.4 12.8 13.1 13.3

EBITDA margin 31.4 34.2 36.7 37.5 38.0 38.9 39.8 40.3 40.8 41.3 41.6 42.2 42.8

Capex/sales 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Effective tax rate 35.4 35.4 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0

Rs/share

Core business value 229

Regulatory impact

One-time excess charge (6)

Target price 222

IDEA Telecom


Exhibit 5: Key assumptions driving Idea model, March fiscal year-ends, 2013-2018E


2013 2014 2015 2016E 2017E 2018E

Subscriber base ('000s) 121,607 135,788 157,808 174,008 186,008 195,608

Net adds per month ('000s) 740 1,182 1,835 1,350 1,000 800

Voice traffic (bn mins) 532 588 683 788 855 898

Change(%) 17.4 10.5 16.3 15.3 8.5 5.0

Voice RPM (Rs/min) 0.350 0.370 0.356 0.331 0.340 0.346

Change(%) (4.2) 5.8 (3.8) (7.0) 2.5 2.0

Overall RPM (Rs/min) 0.412 0.442 0.455 0.455 0.481 0.517

Change(%) (2.4) 7.3 2.9 0.1 5.6 7.5

Data revenues (Rs mn) 12,144 23,105 45,404 70,985 97,998 130,554

Change(%) 82.6 90.3 96.5 56.3 38.1 33.2

SMS & VAS revenues (Rs mn) 20,669 18,914 21,758 26,545 22,578 22,260

Change(%) 9.2 (8.5) 15.0 22.0 (14.9) (1.4)

ARPU (Rs/sub/month) 156 168 176 180 190 203

Change(%) (1.1) 7.9 4.9 2.1 5.6 6.5

MOU (min/sub/month) 378 381 388 396 396 392

Change(%) 1.3 0.6 1.9 2.0 0.0 (0.9)

EBITDA per minute (Rs/min) 0.101 0.126 0.143 0.154 0.166 0.181

Change(%) 1.3 24.5 13.5 8.1 7.7 8.9

Capex (Rs mn)

Standalone (ex-spectrum) 31,836 35,282 40,500 63,862 69,584 71,132

As % of revenues 14.1 13.3 12.8 17.6 16.7 15.2

Consolidated (including spectrum) 49,131 68,421 347,675 108,135 113,985 95,411

As % of revenues 21.9 25.8 110.1 29.8 27.4 20.4


Strong growth trajectory continues.

Bajaj Finance reported 30% growth in earnings to `2.75 bn, 2% ahead of estimates, on the back

of 35% growth in loan book (`355 bn). Calculated NIM was stable yoy. The benefit of recent

warrants and QIP issuance (June 2015) will be fully reflected in 2QFY16. Consumer finance loan

book (up 40% yoy) was the clear business driver; consumer business loans were up 25% yoy.

Investment returns support earnings; premium growth moderate at Bajaj General Insurance

Bajaj General Insurance reported 8% premium growth (12% yoy in 4QFY15) in net premium.

Underwriting profits remained low at `280 mn (17% yoy) and the majority of the earnings were

driven by investment book of `82 bn (up `4 bn qoq). The company reported PAT of `1.47 bn,

up 13% yoy.

Momentum picks up in line insurance

Bajaj Life reported 71% growth in new business premium. APE was up 22% yoy; gross premium

growth was driven by group business. Conservation ratio was stable at 69% yoy. The company

reported PAT of `2.4 bn after policyholders’ surplus of `990 mn was transferred to the

shareholders’ account; such transfer was not done in 1QFY15 and hence the 1QFY16 earnings

are not comparable with the historic figures.

Bajaj Finance add maximum value

We retain ADD rating on Bajaj Finserv with revised price target of `1,720 (up from `1,650).

Bajaj Finance (valued at 2.7X PBR FY2017E) is the largest contributor at 45% of SOTP- we

continue to believe in superior execution of Bajaj Finance and its ability to toggle across product

lines and innovate distribution channels. The life and general insurance businesses add 27%

and 26% respectively to the SOTP. We value the general insurance business at 2.6X PBR

FY2017E (medium-term RoE of 25%) and life insurance business at 1X EV (assuming 10% near-

term operating RoEV).

Bajaj Finserv (BJFIN) Banks/Financial Institutions

Bajaj Finance remains strong; Bajaj Life a tad better. Bajaj Finance continued to

deliver robust performance during 1QFY16 driven by buoyancy in consumer finance.

Bajaj Life Insurance reported 22% APE growth on the back of high momentum in unit

linked policies while Bajaj General Insurance had a muted quarter. We retain ADD

rating on the stock with a price target of `1,720 (`1,650 earlier).

ADD

JULY 23, 2015

RESULT

Coverage view: Attractive

Price (`): 1,677

Target price (`): 1,720

BSE-30: 28,505

QUICK NUMBERS

Bajaj Finance

reported 30%

earnings growth

Bajaj General

Insurance reported

8% growth in

premium

22% APE growth for

Bajaj Life

Bajaj Finserv





Promoters 58.4 NII (Rs bn) 32.9 43.0 51.7


MFs 5.0 BVPS 689.1 855.9 1,001.4

Price performance (%) 1M 3M 12M P/B (X) 2.4 2.0 1.7

Absolute 10.5 26.6 78.6 ROE (%) 16.7 15.7 15.0

Rel. to BSE-30 7.5 23.9 63.1 Div. Yield (%) 0.8 0.8 0.8


1,799-912

266.9

Bajaj Finserv Banks/Financial Institutions


Exhibit 1: Bajaj Finserv - consolidated earnings Profits of various group companies, 1QFY15- 1QFY16 (` mn)


Exhibit 2:Bajaj General Insurance - quarterly trends March fiscal year-end, 1QFY13 – 1QFY15 (` mn)


Exhibit 3: Bajaj Allianz Life Insurance - quarterly trends March fiscal year-end, 1QFY14 – 1QFY15 (` mn)


Exhibit 4: We value Bajaj Finserv at `1,720/ share Sum-of-the-parts-based valuation of Bajaj Finserv, March fiscal year-end, 2017E (`/share)


1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 YoY (%)

Standalone 80 600 141 438 136 71

Bajaj Life 2,860 2,430 1,750 1,720 2,410 (16)

Policyholders surplus 1,710 1,400 760 1,010

Shareholders surplus 1,150 1,030 990 710 2,410 110

Bajaj General Insurance 1,300 1,450 1,430 1,440 1,470 13

Bajaj Finance 2,114 1,972 2,584 2,310 2,756 30

Consolidated PAT 3,190 3,159 3,470 7,071 4,669 46

Adj cons PAT (1) 4,392 4,136 3,955 7,749 4,669 6

1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 YoY (%)

Standalone 80 600 141 438 136 71

Bajaj Life 2,860 2,430 1,750 1,720 2,410 (16)

Policyholders surplus 1,710 1,400 760 1,010

Shareholders surplus 1,150 1,030 990 710 2,410 110

Bajaj General Insurance 1,300 1,450 1,430 1,440 1,470 13

Bajaj F inance 2,114 1,972 2,584 2,310 2,756 30

Consolidated PAT 3,190 3,159 3,470 7,071 4,669 46

Adj cons PAT (1) 4,392 4,136 3,955 7,749 4,669 6

Notes:

(1) The company trasferred surplus in policyholders account to shareholders account in 1QFY16; in the past,

this was done at the end of the year.

1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 YoY(%)

Gross business premium 7,960 14,010 14,420 23,790 10,820 36

New business premium 3,940 6,100 5,720 11,270 6,740 71

Non-single 1,865 4,130 4,115 4,912 NA

Single/ group 2,075 1,970 1,605 6,358 NA

Renewal premium 4,020 7,910 8,700 12,520 4,080 1

Conservation (%) 69 78 85 78 69 1

AUMs (Rs bn) 406 409 422 436 432 6

Value Value per share

(Rs mn) (Rs) Comments

Bajaj Allianz Life Insurance 109,659 74 458 1X EV

Bajaj Allianz General 106,146 74 443 2.7X PBR for 25% medium-term RoE

Bajaj Finance 237,900 58 782 2.7X PBR for 18-20% RoE

Net cash 6,000 100 38 1X cash

Total 1,722

Share

(%)

Banks/Financial Institutions Bajaj Finserv


Bajaj Finance: Consumer business drives growth

Bajaj Finance delivered 30% yoy growth in PAT to `2.75 bn driven by 31% NII growth. Loan

book growth remained strong at 32% yoy, driven by loans to consumers (up 42% yoy) and

small businesses (up 32% yoy). NIM (calculated) was stable yoy at 10%. Gross NPLs were

higher at 1.7% as compared to 1.13% in 1QFY15 largely due to a shift to 150 dpd NPL

norm from 180 dpd earlier.

We expect Bajaj Finance to report 19-20% RoE and 28% PAT CAGR between FY2015 and

FY2018E, driven by 26% CAGR growth in loans; EPS growth will be lower at 25% post the

recent capital issuance.

We conservatively build NIM compression due to eventual shift to business loans though

consumer loans have been the key growth driver for the past few quarters. We expect

overall operating expenses to decline due to (1) higher share of business loans and (2)

increase in cross selling/ loans to existing borrowers. Fee income from distribution of

insurance products of the group and a wealth management vertical remain upsides.

Exhibit 5: Bajaj Finance - quarterly financial statements March fiscal year-ends, 1QFY15-1QFY16 (` mn)


Multiple segments drive loan growth

Growth momentum remained strong. Bajaj Finance reported 32% yoy growth in loans

under management to `356 bn, driven by strong growth in consumer loans (39% yoy) and

business loans (26% yoy). We factor loan growth at 30% in FY2016E, and 26% CAGR

between FY2016 and FY2018E. Focus on new segments and distribution channel which

improves profitability are key strengths of its business model - the trends during the quarter

reinforce this thesis. Over the medium term, the management envisages a loan mix of –

35% consumer, 45% small business, 7-10% rural and 13-10% commercial.

(% chg.)

1QFY16 1QFY16E 1QFY15 4QFY15 1QFY16E 1QFY15 4QFY15

Next 9

months

2016

Next 9

months

2015 (% chg.)

Operational income 15,716 15,320 11,801 13,531 (3) 33 16 52,009 39,398 32

Interest expenses 6,771 6,495 4,996 6,118 (4) 36 11 21,540 17,487 23

Net operational income 8,946 8,824 6,805 7,413 (1) 31 21 30,469 21,911 39

Provisions/ write-offs 1,033 1,150 829 1,137 11 25 (9) 4,339 3,016 44

Recovery commission 554 600 469 558 8 18 (1) 2,204 1,575 40

Net operational income (post provisions)7,359 7,074 5,507 5,718 (4) 34 29 23,926 17,320 38

Operating expenses 3,976 3,700 2,960 3,191 (7) 34 25 10,933 9,281 18

Other operational income 746 700 635 762 (6) 17 (2) 1,470 1,983 (26)

Other income 96 40 24 156 (58) 310 (38) 464 341 36

Profit before tax 4,224 4,114 3,206 3,445 (3) 32 23 14,927 10,363 44

Tax 1,468 1,399 1,092 1,136 (5) 34 29 5,043 3,498 44

Profit after tax 2,756 2,716 2,114 2,310 (1) 30 19 9,884 6,865 44

EPS (Rs) 55 54 43 46 (1) 30 19 182 137 33

Other operational data

AUM

Consumer finance 149 107 132 39 13

Small business loans 166 132 171 26 (3)

Commercial 35 29 17 19 99

Rural 5 1 3 587 57

Total AUMs 356 269 324 32 10

CAR (%) 20.7 18.0 18.0

Tier I (%) 17.4 15.2 14.5

Gross NPL(%) 1.7 1.1 1.5

Net NPLs (%) 0.6 0.3 0.5

NIM incl fees (KS - calc- %) 11.4 11.7 10.3

Cost to income (%) 46.8 46.6 45.8

RoAUM - annualised (%) 3.2 3.3 2.9



High growth in consumer business. Bajaj Finance delivered 39% yoy and 13% qoq

loan growth in the consumer finance segment to `149 bn. Consumer durable finance

and personal loans have been the key drivers. Consumer durables had another quarter of

strong growth with disbursements (# accounts) up 31% yoy and loan growth of 48%

yoy. Promotion efforts and electronic goods sales driven by IPL and extended summer

helped keep the momentum. Personal loan growth was also very strong at 73% yoy with

higher contribution (57%) coming from D2C channel. Digital and lifestyle finance

business grew strongly 2.5X from a low base. The company has around 20% market

share in consumer durable loans. As for the digital loan portfolio (i.e. mobile phone

financing), it is the largest lender for Apple phones and higher-ticket Samsung phones.

Auto and infra finance remain sluggish. Two-wheeler and three-wheeler loans

declined 8% yoy on the back of slowing sales and lower penetration of Bajaj Auto in

2W/3W market. Infra segment continues to be weak with 10% yoy decline.

LAP: Slowing down; concerns on loans against plot. Bajaj Finance has been slowing

down in the LAP business, in line with recent trends; this segment delivered 13% loan

growth - significantly lower than 32% AUM growth. Bajaj Finance was one of the early

entrants in this segment. With rising competition and declining profitability, the company

is now smartly slowing down. Management highlighted that within LAP, loans against

plot had high delinquency and they have already ceased new disbursements in this

segment. There is an effort to increase the share of direct originations (as compared to

distributors) as the churn rates tend to be much lower along with lower cost of

acquisition. Home loan growth was strong at 26% on a low base.

Rural business grows from a low base. Rural lending business was in the pilot stage till

3QFY15 and scaled up in 4QFY15. 1QFY16 loan growth was over 50% qoq.

Management expects the share of this segment to increase to 6% over the next three

years from 1% currently. 15 new branches were opened across Karnataka, Gujarat and

Maharashtra. The focus here is on the affluent rural customers by offering them working

capital and LAP products.

Ecommerce financing tie-up with Flipkart. Bajaj Finance launched a ‘seller finance’

venture with Flipkart last quarter and with disbursement of `39.6 mn. Bajaj will also

launch a ‘consumer finance’ scheme with select ecommerce companies in the Jul-Sep

quarter.

NIM declines 180bps qoq due to seasonality; stable yoy

Bajaj Finance’s NIM (calculated) improved ~120bps qoq to 10.0% which is explained by

seasonally higher NIM in the first and third quarters during which income is booked upfront,

thus inflating margins. NIM was flat yoy.

NPLs slightly up qoq

Gross NPLs increased 18 bps qoq and 52 bps yoy to 1.7%. Marginally higher NPLs were due

to reporting change from 180 days-past-due (dpd) to 150 dpd. Provision expenses grew

25% yoy to `1.0 bn during the quarter but this is ‘business-as-usual’ and does not reflect

change in NPL recognition policy. Provision coverage ratio stood at 68%.



Exhibit 6: Bajaj Finance - Change in estimates March fiscal year-ends, 2016-17E (` mn)


Old versus new (%)

2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E

Net interest income 41,631 50,317 61,488 40,151 49,069 59,453 4 3 3

Loan growth (%) 30 24 24 28 24 24

NIM (%) 11.4 10.9 10.7 11.1 10.8 10.5

NPL provisions 5,372 6,352 7,905 5,332 6,270 7,807 1 1 1

Operating expenses 17,668 21,531 25,823 17,668 21,531 25,823 - - -

Employee 5,859 7,441 9,301 5,859 7,441 9,301 - - -

Others 11,809 14,090 16,522 11,809 14,090 16,522 - - -

PBT 19,151 23,072 28,400 17,711 21,905 26,463 8 5 7

Tax 6,511 7,844 9,656 6,022 7,448 8,998 8 5 7

PAT 12,640 15,227 18,744 11,689 14,457 17,466 8 5 7

Old estimatesNew estimates



Exhibit 7: Bajaj Finance – key growth rates and ratios March fiscal year-ends, 2013-18E (%)


2013 2014 2015 2016E 2017E 2018E

Income statement growth (%)

Total interest income 43.0 30.3 33.5 30.0 22.4 23.5

Total interest expense 61.6 30.5 42.9 25.9 24.6 25.3

Net interest income 33.2 30.3 27.5 32.9 20.9 22.2

Loan loss provisions 17.8 41.8 103.0 2.6 18.2 24.5

Income post provisions 35.1 29.0 24.9 31.9 21.3 21.9

Net pre-prov income 33.6 31.2 26.8 33.1 20.8 21.9

Operating expenses 27.4 35.1 24.1 23.7 21.9 19.9

Employee expenses 28.8 39.0 32.2 30.0 27.0 25.0

Other Expenditure 23.9 29.8 20.3 20.0 20.0 20.0

Balance sheet growth (%)

Net loans 33.6 37.4 34.7 29.6 23.6 23.7

Investments (4.0) 436.3 1,077.6 10.0 11.0 11.0

Current Assets 247.1 (15.6) (35.1) 5.4 6.4 7.3

Net fixed assets 27.0 24.8 13.3 5.0 5.0 5.0

Total assets 43.2 33.0 33.3 28.4 23.8 23.8

Total borrowings 53.1 43.0 34.2 24.8 24.8 25.6

Shareholders funds 65.6 18.5 20.3 54.2 22.0 18.1

Asset management measures (%)

Yield on assets 21.3 20.3 19.9 19.5 18.9 18.7

Yield on loans 20.1 19.2 18.9 18.8 18.2 18.1

Average cost of funds 10.4 9.2 9.5 9.3 9.3 9.3

Difference 11.0 11.1 10.3 10.2 9.6 9.4

Net interest income/earning assets 12.8 12.0 11.3 11.4 10.9 10.7

Tax rate 33.0 33.0 34.0 34.0 34.0 34.0

Profitability measures (%)

Interest income/total income 99.1 98.3 98.9 98.7 98.7 99.0

Operating expenses/NII 44.7 46.0 45.1 41.9 42.3 41.6

Operating expenses/assets 5.4 5.3 5.0 4.7 4.6 4.4

Credit cost/average loans 1.3 1.3 1.4 1.5 1.4 1.4

Payout ratio 12.6 11.2 10.0 11.0 11.0 11.0

Equity/assets (EoY) 18.2 16.2 14.6 17.6 17.3 16.5

Debt equity ratio (X) 4.2 5.0 5.6 4.6 4.7 5.0

Du Pont analysis

% of average assets


Adj. net interest income 12.0 11.4 10.9 11.1 10.7 10.5

Loan loss provisions 1.2 1.2 1.3 1.4 1.3 1.4


(1- tax rate) 67.8 65.9 66.2 66.0 66.0 66.0

RoA 3.8 3.3 3.1 3.4 3.2 3.2

Average assets/average equity 5.8 5.9 6.5 6.1 5.7 5.9

RoE 21.9 19.5 20.4 20.7 18.5 19.0



Exhibit 8: Bajaj Finance – income statement and balance sheet March fiscal year-ends, 2013-2018E (` mn)


2013 2014 2015 2016E 2017E 2018E

Income statement

Total interest income 30,931 40,315 53,817 69,941 85,583 105,668

Total interest expense 12,059 15,732 22,483 28,310 35,266 44,180

Net interest income 18,872 24,582 31,334 41,631 50,317 61,488

Provisions and write/off 1,818 2,578 3,845 5,372 6,352 7,905

Net interest income (after prov.) 17,054 22,004 27,489 36,259 43,965 53,583

Net income pre loan loss provision 19,049 25,001 31,698 42,191 50,955 62,128

Operating expenses 8,523 11,511 14,285 17,668 21,531 25,823

Employee expense 2,451 3,408 4,507 5,859 7,441 9,301

Other expenditure 4,725 6,133 7,378 8,854 10,624 12,749

Pretax income 8,708 10,912 13,568 19,151 23,072 28,400

Tax provisions 2,803 3,722 4,591 6,511 7,844 9,656

Net Profit 5,905 7,191 8,977 12,640 15,227 18,744

Dividends 747 802 900 1,390 1,675 2,062

Dividend tax 127 136 153 236 285 351

Adj. shares outstanding (mn) 50 50 50 53 54 54

EPS (Rs) 119 145 180 237 281 346

BPS (Rs) 677 802 960 1,389 1,666 1,967

Balance sheet

Net loans 167,434 229,710 312,000 404,203 503,181 626,168

Investments 53 282 3,322 3,654 4,056 4,502

Current Assets 14,930 12,598 8,177 8,616 9,170 9,839

Deferred tax assets 904 1,392 2,122 2,122 2,122 2,122

Net fixed assets 1,762 2,199 2,491 2,616 2,746 2,884

Total assets 185,082 246,180 328,112 421,211 521,275 645,515

Liabilities

Total borrowings 140,857 201,374 270,218 337,303 421,100 529,008

Current liabilities 8,981 2,533 7,533 7,533 7,533 7,533

Provisions 1,575 2,365 2,365 2,365 2,365 2,365

Total liabilities 151,413 206,271 280,115 347,201 430,997 538,906

Share capital 497 498 500 533 542 542

Reserves 33,173 39,411 47,497 73,477 89,736 106,067

Shareholders funds 33,670 39,909 47,997 74,010 90,278 106,609



Exhibit 9: Low RoEV for Bajaj Allianz Life RoEV movement, March fiscal year-ends, 2015-2018E (Rs bn)


Exhibit 10: We expect Bajaj Life to deliver pre-overrun margin of 18% NBAP margins, March fiscal year-ends, 2015-2018E (Rs bn)


Exhibit 11: Bajaj Finserv - key financial ratios and growth rates March fiscal year-ends, 2013-2018E (%)


2015 2016E 2017E 2018E Comments

Opening Embedded value (EV) 76.0 93.0 100.5 109.2

Methodology changes 0.7 0.5 0.5 0.5 Better-than-expected mortality experience

Assumption change

NBV (before over-run) 1.8 2.0 2.3 2.7 Individual business and group business

Acquisition expense overrun (2.6) (2.0) (1.8) (0.5) We expect expense overruns to remain high

Expected return in force 5.5 7.0 7.5 8.2 Unwinding at 7.5%

Operating variance 1.0 Better-than-expected renewal business experience

Tax changes 0.0

Investment varinace 10.6 We don’t factor any investment variance

Dividend payout 0.0 We don't factor any dividend payout

Closing EV 93 101 109 120

EVOP 6 8 9 11

RoEV (%) 22 8 9 10

Operating RoEV (%) 8 8 9 10

2015 2016E 2017E 2018E Comments

APE 9.9 11.3 13.0 15.0 We assume 15% APE growth

NBV 1.8 2.0 2.3 2.7

NBAP margins pre overrun (%) 18.1 18.0 18.0 18.0

NBV post overrun (0.8) 0.0 0.6 2.2

NBAP margins post overrun (%) (8.3) 0.4 4.6 14.7 Post over-run margin at 15%

2013 2014 2015 2016E 2017E 2018E

Growth in key parameters (%)

Total income 32 14 14 17 18 18

Premium (1) (6) 6 17 19 19

Investment income 530 53 13 6 13 14

Expenses 35 16 14 16 19 19

PBT 22 3 15 21 15 17

PAT (post minority interest) 20 (7) 10 14 15 15

PBT before surrender premium 34 - - - - -

EPS 9 (7) 10 14 15 15

Loan book 36 37 36 30 24 24

Investments 3 (1) 35 15 15 12

Total assets 13 12 11 15 15 15

Policyholders funds (7) (1) 2 4 7 11

Shareholders funds 55 19 18 24 17 (2)

Key ratios (%)

PBT margin 17 16 16 16 16 16

Debt-equity (X) 1.8 2.2 2.5 2.5 2.6 3.4

RoA 3.6 3.1 3.1 3.2 3.2 3.2

RoE 25.6 17.9 16.7 15.7 15.0 16.2



Exhibit 12: Bajaj Finserv - consolidated P&L and Balance Sheet March fiscal year-ends, 2013-2018E (` mn)


2013 2014 2015 2016E 2017E 2018E

Profit and loss (Rs mn)

Total income 171,035 195,266 222,738 259,764 307,019 363,116

Interest income 31,968 41,393 55,419 71,341 87,015 105,668

Bajaj Finance 30,931 40,315 53,817 69,941 85,583 105,668

Others 1,037 1,079 1,602 1,400 1,432 -

Insurance premium 98,168 92,683 98,487 115,538 137,636 164,033

Investment income 39,397 60,399 68,018 72,160 81,643 93,114

Other income 1,502 791 814 725 725 300

Expenses 141,534 164,766 187,665 217,281 258,012 305,887

Interest expenses 12,059 15,732 22,483 28,310 35,266 44,180

Provisions 1,818 2,578 3,845 5,372 6,352 7,905

Operating expenses 32,993 35,262 39,567 46,962 56,063 66,162

Commission expenses 3,795 2,834 3,264 4,677 5,543 6,607

Depreciation 13 13 25 40 40 -

Benefits paid 114,249 110,071 112,034 117,974 128,416 141,234

Change in reserve (23,393) (1,725) 6,446 13,946 26,333 39,799

PBT 29,501 30,501 35,073 42,484 49,007 57,228

Tax 6,613 8,562 10,827 14,067 16,211 18,887

PAT 22,888 21,938 24,245 28,417 32,796 38,341

Minority interest 6,472 6,603 7,328 9,076 10,597 12,759

PAT post minority interest 16,416 15,336 16,918 19,341 22,199 25,582

Shares (mn) 159 159 159 159 159 159

EPS (Rs) 103.2 96.4 106.3 121.5 139.5 160.8

BVPS (Rs) 490 585 689 856 1001 985

Balance sheet

Fixed assets 8,825 9,846 10,795 11,579 12,473 12,857

Loan book 167,434 229,710 312,000 404,203 503,181 626,168

Investments 470,347 464,529 627,140 719,176 828,621 930,864

Other current assets 23,061 43,104 (118,035) (176,509) (237,335) (301,711)

Total assets 669,667 747,189 831,900 958,449 1,106,940 1,268,178

Borrowings 140,857 201,374 270,218 337,303 421,100 529,008

Policyholders funds 333,194 331,469 337,915 351,861 378,194 417,993

Funds for future appropriation 13,175 1,839 19,228 23,084 27,770 33,420

Other liabilities 76,136 83,976 58,282 55,282 55,282 54,486

Total liabilities 563,361 618,658 685,643 767,531 882,346 1,034,907


Equity capital 7,956 7,956 7,956 7,956 7,956 7,956

Reserves 70,058 85,159 101,690 128,234 151,385 148,757

Minority interest 28,317 35,415 42,250 54,728 65,253 76,557


Weak headline numbers alone do not fully reflect underlying operating challenges

JSW Energy’s consolidated earnings declined 15% yoy to `2.7 bn, not fully reflecting the extent

of underlying weakness as earnings were boosted by `432 mn of non-recurring accruals

pertaining to settlement of tariffs for the transmission business. Adjusted for the non-recurring

accruals (`432 mn) and adjusting the base for earnings contribution from banked energy,

adjusted profit of `2.4 bn was down 20% yoy. Weakness in earnings was on account of (1)

11% yoy decline in net generation at 4.5 BU, (2) drop in blended realizations by 1% yoy to

`4.18/kwh, and (3) losses of `210 mn attributable to the joint venture with Toshiba for power

equipment manufacture. Impact on earnings was cushioned by (1) decline in blended fuel cost

by 7% yoy to `2.17/kwh, and (2) higher other income of `1 bn (compared to `750 mn factored

by us).

Demand moderation yields lower PLFs pressures merchant realizations

The lowered energy deficit across regions yielded a 17% yoy decline in adjusted standalone net

profits at `1.7 bn. Earnings weakness reflects (1) 10% yoy decline in net generation at 3 BU,

and (2) blended realizations at `4.2/kwh (-5% yoy). We note that reported earnings for the

preceding quarter include the sale of banked energy that contributed `2.2 bn to the revenues

and `330 mn of EBITDA. Management attributed the lower generation to (1) weakness in

demand, and (2) shut-down of 300 MW plant at Ratnagiri. We expect the weakness in

generation to continue in the coming quarter owing to lower demand in the monsoon season

as well as shut-down of 300 MW capacity at Vijaynagar for a large part of 2QFY16.

Maintain SELL rating—leverage, equity dilution may weigh even as positives are priced in

We see limited upside from likely moderation in prices of imported coal from hereon, even as

the risk of lower merchant realizations in South India could weigh on blended realizations of

standalone operations. Incremental equity raising and stabilization of potential coal-based

power capacities coupled with risk of yet-to-be finalized tariff order for Barmer could further

weigh on stock performance. Our estimates do not factor the earnings from hydro assets that

could contribute Rs0.4/share. Maintain SELL rating with target price of Rs81/share.

JSW Energy (JSW) Utilities

Demand weakness comes to the fore. JSW Energy reported weak earnings with

adjusted net income of `2.4 bn reflecting 20% yoy decline compared to the same

period last year. Weak earnings performance was led by 11% yoy decline in generation,

even as some moderation in fuel cost was off-set by continued benefit of declining fuel

cost. Demand environment for operational merchant capacities appears challenging,

even as acquisition of hydro assets could necessitate incremental capital raising.

Maintain SELL rating and target price of `81/share.

SELL

JULY 23, 2015

RESULT


Price (`): 99


BSE-30: 28,505

JSW Energy







MFs 0.7 EBITDA (Rs bn) 34.8 38.6 36.1


Absolute (3.8) (14.0) 21.9 ROE (%) 19.6 21.3 17.8

Rel. to BSE-30 (6.4) (15.9) 11.3 Div. Yield (%) 0.0 0.0 0.0


126-64

162.2

Utilities JSW Energy


Monnet—project cost, negative bid in coal auction may weigh on valuations

JSW Energy has entered into a non-binding memorandum of understanding to acquire

1,050 MW of coal-based capacity belonging to Monnet Ispat and Energy. Monnet Power

had up to March 2014 incurred capex of `49 bn against a debt of `40 bn and an estimated

project cost of `71 bn. Monnet has PPAs in place and also won a coal block in the recently

concluded coal block auction.

MPC won the coal block Utkal C at a negative bid of `770/ton to fuel its power plant. Utkal

C (in proximity to the plant) has a production capacity of 3.4 mtpa and reserves of 124 mn

which if ramped up could well take care of the needs of the power plant. We highlight

however, that extant PPAs may not make the negative bid in the coal auction a viable option

for the coal plant and the consideration to be paid by JSW Energy should be seen in the

context of the negative spread on coal auction.

JPVL—hydro asset acquisition an interest-rate arbitrage for annuity cash flows

JSW Energy has agreed to acquire the hydro assets of Jaiprakash Power Ventures

aggregating 1,391 MW for an enterprise value of `97 bn—comprising debt of Rs58 bn and

equity value of `39 bn compared to KIE estimate of `37 bn. We note that of the debt of

`58 bn, regulated debt is `45 bn with debtor’s securitization accounting for the balance `13

bn. JSW Energy is looking to fund the acquisition by incremental borrowing of `39 bn at the

parent entity that will also bring with it the additional tax shield on interest cost for

acquisition debt.

JSW Energy will likely accrue incremental profits of `0.6 bn (`0.4/share) as it looks to enjoy

the arbitrage between a 20% regulated return project (13% RoE on premium paid), funded

by acquisition cost post-tax interest cost of 9%.

The two hydro projects have a regulated equity of `26 bn and regulated debt of `45 bn,

implying that the current consideration paid for the asset reflects a P/B multiple of 1.7X.

While we concede that the acquired assets enjoy a superior return profile, with RoE in excess

of 20% owing to a higher base return (16-16.5%) and lucrative incentives, part of the cash

flows have already been securitized.

JSW Energy Utilities


Exhibit 1:Headline revenue decline was impacted by lower generation as well as sale of banked energy during the same period last year Interim results for JSW Energy (Consolidated), March fiscal year-ends (Rs mn)


Exhibit 2:Standalone earnings were impacted by lower generation during the quarter owing to weak demand Interim results for JSW Energy (Standalone), March fiscal year-ends (Rs mn)


(% Chg.)

1QFY16 1QFY16E 1QFY15 4QFY15 1QFY16E 1QFY15 4QFY15 FY2016 FY2015 (% chg.)

Net sales 20,694 20,182 25,215 21,511 3 (18) (4) 91,418 92,359 (1)

Operating costs

Cost of fuel (9,739) (10,124) (11,748) (10,467) (44,837) (46,811)

Purchase of power (1,323) (1,306) (1,251) (537) (2,248) (2,248)

O&M (1,835) (1,760) (1,602) (1,981) (5,733) (6,588)

(Decrease)/increase in banking energy — — (1,921) — 0 (1,921)

EBITDA 7,797 6,992 8,694 8,527 12 (10) (9) 38,599 34,792 11

EBITDA margin (%) 38 35 34 40 42 38

Other income 1,067 752 787 683 3,622 3,743

Interest & finance charges (2,640) (2,746) (2,931) (2,713) (10,502) (11,375)

Depreciation (1,984) (1,998) (1,948) (1,962) (7,898) (7,898)

PBT 4,239 3,000 4,601 4,534 41 (8) (7) 23,822 19,263 24

Provision for tax (net) (1,155) (750) (1,248) (1,269) (5,844) (5,150)

Net profit before minority interest 3,084 2,250 3,353 3,265 37 (8) (6) 17,978 14,113 27

Minority interest/share in profit of associates (310) — (99) (13) (63) (276)

Net profit 2,775 2,250 3,255 3,252 23 (15) (15) 17,915 13,837 29

Extraordinary — — — — - (342)

EBITDA margin (%) 38 35 34 40 42 38

Tax rate (%) 27 25 27 28 25 27

Key operating parameters

Net generation (mn units) 4,480 4,452 5,007 4,698 1 (11) (5) 20,938 20,308 3

Average realization (Rs/kwh) 4.18 4.25 4.21 4.37 (2) (1) (4) 4.32 4.23 2

Fuel cost (Rs/kwh) 2.17 2.27 2.35 2.23 (4) (7) (2) 2.14 2.31 (7)

O&M (Rs/kwh) 0.41 0.40 0.32 0.42 4 28 (3) 0.27 0.32 (16)

Contribution (Rs/kwh) 1.60 1.58 1.54 1.72 1 3 (7) 1.91 1.60 19

(% Chg.)

1QFY16 1QFY15 4QFY15 1QFY15 4QFY15 FY2016 FY2015 (% chg.)

Net sales 12,492 16,909 13,817 (26) (10) 59,948 61,899 (3)

Operating costs

Fuel costs (7,511) (9,251) (7,940) (33,711) (36,929)

O & M (988) (910) (1,070) (3,567) (3,444)

(Decrease)/increase in banking energy — (1,920) — — (1,920)

EBITDA 3,994 4,828 4,807 (17) (17) 22,670 19,607 16

EBITDA margin (%) 32 29 35 38 32

Other income 925 898 844 5,364 4,357

Interest & finance charges (1,364) (1,529) (1,396) (5,331) (5,856)

Depreciation (1,068) (1,030) (1,046) (4,208) (4,208)

PBT 2,487 3,168 3,210 (21) (23) 18,495 13,899 33

Provision for tax (net) (772) (781) (867) (4,177) (3,611)

Net profit 1,715 2,387 2,343 (28) (27) 14,318 10,288 39

Extraordinary — — — — (342)

EBITDA margin (%) 32 29 35 38 32

Tax rate (%) 31 25 27 23 26

Key operating parameters

Net generation (mn units) 2,979 3,320 3,059 (10) (3) 14,051 13,752 2.2

Average realization (Rs/kwh) 4.19 5.09 4.52 (18) (7) 4.27 4.50 (5.2)

Fuel cost (Rs/kwh) 2.52 2.79 2.60 (10) (3) 2.40 2.69 (10.7)

O&M (Rs/kwh) 0.33 0.27 0.35 21 (5) 0.25 0.25 1.4

Contribution (Rs/kwh) 1.34 2.03 1.57 (34) (15) 1.61 1.57 3.1

Utilities JSW Energy


Exhibit 3: For every US$10/ton change in coal prices target price can change by Rs15/share Sensitivity of JSW SOTP to coal prices and merchant tariffs


Exhibit 4:Valuation of power project portfolio of JSW Energy


81 45 55 60 70 80

3.00 62 46 38 22 9

3.50 90 75 67 51 36

3.75 104 89 81 66 50

4.00 118 103 95 80 64

4.50 147 131 124 108 93

FOB Coal price of SA coal (US$/ton)

Merc

han

t

Tari

ff

(Rs/

kw

h)

Sensitivity of JSW SOTP to coal prices and merchant tariffs

Capacity Cost Ownership Value

Project Type (MW) (Rs bn) (Rs mn / MW) (%) (Rs bn)

JSWEL-SBU I Thermal 260 11 42 100 11

JSWEL-SBU II Thermal 600 19 31 100 19

Barmer I Thermal 1,080 69 64 100 19

Ratnagiri I Thermal 1,200 57 47 100 47

Jaigadh Power Transco Transmission 6 34 74 2

Sum of power assets 3,140 161 51 97

Cash 36

Total 133

No. of shares (bn) 2

Value per share 81

JSW Energy Utilities


Exhibit 5:Profit model, balance sheet, cash model of JSW Energy Ltd, March fiscal year ends, 2011-2018E (Rs mn)


2011 2012 2013 2014 2015 2016E 2017E 2018E

Profit model

Net revenues 41,936 58,860 86,916 85,520 92,359 91,418 88,571 81,845

EBITDA 14,634 12,149 25,505 30,980 34,792 38,599 36,086 29,478

Other income 2,339 2,852 3,655 3,556 3,743 3,622 4,922 10,539

Interest (expense)/income (4,325) (7,172) (9,628) (12,059) (11,375) (10,502) (9,442) (8,381)

Depreciation (2,668) (5,033) (6,615) (8,100) (7,898) (7,898) (7,898) (7,898)

Pretax profits 9,980 2,796 12,917 14,377 19,263 23,822 23,669 23,738

Tax (1,839) (690) (2,439) (2,408) (4,121) (5,458) (4,948) (5,207)

Deferred taxation 276 271 (294) (428) (1,029) (386) (445) (703)

Minority interest 1 (6) (88) (217) (276) (63) (69) (75)

Net income 8,418 2,371 10,096 11,324 13,837 17,915 18,207 17,755

Extraordinary items — (1,613) (1,966) (3,777) (342) — — —

Reported profit 8,418 758 8,130 7,547 13,495 17,915 18,207 17,755

Earnings per share (Rs) 5.1 1.4 6.2 6.9 8.4 10.9 11.1 10.8

Balance sheet

Paid-up common stock 16,401 16,401 16,401 16,401 16,401 16,401 16,401 16,401

Total shareholders' equity 56,765 57,001 62,038 65,712 75,180 93,095 111,302 129,056

Deferred taxation liability 1,562 1,292 1,524 1,933 2,930 3,316 3,761 4,464

Minority interest 724 500 452 503 547 1,006 1,075 1,150

Total borrowings 96,376 99,947 103,766 101,065 92,941 82,998 72,979 63,164

Total liabilities and equity 155,427 158,739 167,780 169,212 171,598 180,415 189,117 197,834

Net fixed assets 64,214 109,450 138,969 136,241 131,810 123,913 116,015 108,117

Capital work-in progress 77,080 43,268 9,772 6,146 4,536 6,420 6,420 6,420

Investments 4,842 4,971 9,550 8,877 16,188 16,188 16,188 16,188

Goodwill 171 294 280 106 97 97 97 97

Cash 9,779 6,686 3,990 5,675 3,515 19,301 36,405 53,619

Net current assets (excl. cash) (659) (5,929) 5,219 12,168 15,452 14,496 13,991 13,392

Net current assets (incl. cash) 9,120 757 9,209 17,843 18,967 33,797 50,397 67,011

Total assets 155,427 158,739 167,780 169,212 171,598 180,415 189,117 197,834

Ratios

Net debt/equity (%) 150.6 162.2 159.7 144.1 118.1 67.7 32.5 7.3

Return on equity (%) 16.1 4.2 17.0 17.7 19.6 21.3 17.8 14.8

Book value per share (Rs) 35.6 35.5 38.8 41.2 47.6 58.8 70.2 81.4

ROCE (%) 7.2 2.0 7.7 8.3 10.7 13.3 12.6 11.9


Moderate growth in earnings

Muthoot Finance (Muthoot) reported PAT of `1.83 bn, up 2% yoy and 11% qoq. NII was flat

qoq as loan growth (up 4% qoq to Rs244 bn) offset 40bps NIM compression to 9.3%. Opex

ratio was down to 4.7% from 5.1% in 4QFY15 as Muthoot retained focus on cost reduction.

Gradual growth in loans; interim pressure on NIM

Muthoot Finance is making concerted efforts to market gold loans and exit from a transaction-

oriented approach followed earlier. The company recently launched gold loan products catering

to the middle class like home loan margin funding facility, gold overdraft facility etc. To push

the product to the middle-class, Muthoot dropped gold loan rates recently. While banks have

reduced base rates, the benefit was not fully passed on leading to NIM pressure (down 30 bps

to 9.3%). We expect pressure on NIM to be lower here on but nevertheless remain high.

Gold price reduction is a risk, Muthoot well placed

Shielded by currency depreciation, gold prices in India have corrected by 12% since Jan 2015;

30% from its peak as compared to 70% in global gold prices. Muthoot reported negligible NPL

throughout the transition, demonstrating the virtue of its risk management systems. Its loan

book declined by 21% from peak to a high base i.e. 80-100% yoy growth in the previous three

years. With a low base (yoy decline in last two years), we find limited impact as compared to the

previous down-cycle. Muthoot’s concerted efforts to market its products to the middle class will

reduce the impact, in our view. We factor 12% growth in gold loan book during FY2015 (as

compared to 10% over the past six months).

Improving trends ignored by the street; retain BUY

While volatile gold prices could hamper near-term growth trajectory, innovative product

marketing and gradual decline in lending will help offset this. Gold loan is a short term product

and hence growth acceleration is gradual and does not follow a linear pattern. Exhibit 2

highlights that loan and earnings growth reduced to 50-80% in FY2012 from over 100% in the

previous two years and gradually moved into negative trajectory in FY2014.

Muthoot Finance (MUTH) Banks/Financial Institutions

Growth on track, NIM weak. Muthoot’s loan growth remains on track (loan book up

4% qoq) as its marketing efforts yielded results. However, the company has reduced

lending rates ahead of base rate reduction by banks leading to pressure on NIM. We

remain positive of the gold loan opportunity in India; Muthoot’s concerted efforts to

grow the business will reduce the likely impact of decline in gold prices. We revise

estimates to factor lower near-term NIM. Retain BUY with price target of `250.

BUY

JULY 23, 2015

RESULT


Price (`): 202


BSE-30: 28,505

QUICK NUMBERS

Loan book up 4%

qoq and 14% yoy

PAT up 2% qoq

NIM down 30 bps

qoq

Muthoot Finance



Market Cap. (Rs bn) EPS growth (%) (19.5) 11.3 27.3




MFs 5.2 BVPS 128.0 140.2 155.7


Absolute 7.4 5.7 12.9 ROE (%) 14.3 14.0 16.2



255-166

80.3

Muthoot Finance Banks/Financial Institutions


Exhibit 1: Muthoot Finance - quarterly financial statements March fiscal year-ends, 1QFY15- 1QFY16 (` mn)


14% yoy loan growth

Muthoot reported 4% qoq growth in loan book (14% yoy growth) to `244 bn. Average

gold price was down 1% qoq, but in July alone prices corrected by 4.6%.

We factor loan book growth at 12% in FY2016E (10% in the past six months) which will

likely improve to 19% by FY2017-18E. Volatility in gold prices can hamper growth to some

extent. We think any pick-up in business momentum is likely to be sharp rather than gradual

and linear.

Exhibit 2: Business trending up YoY movement in NII, loan book and EPS, March fiscal year-ends, 2010-18E (%)


(% chg.)

1QFY16 1QFY16E 1QFY15 4QFY15 1QFY16E 1QFY15 4QFY15 (% chg.) FY2016E

Income statement

Interest income 11,255 — 10,762 10,870 — 5 4 34,186 31,861 7 45,441

Interest expenses 5,669 — 5,354 5,332 — 6 6 16,681 15,709 6 22,350

Net interest income 5,586 5,789 5,407 5,538 (4) 3 1 17,505 16,152 8 23,091

Provisions (including

standard assets)105 100 80 216 5 31 (51) 250 292 (14) 355

NII post provisions 5,481 5,689 5,327 5,322 (4) 3 3 17,255 15,860 9 22,736

Other income 170 150 158 148 13 7 15 530 465 14 700

Operating expenses 2,815 3,000 2,756 2,897 (6) 2 (3) 9,229 8,777 5 12,044

Admin expenses 1,069 1,200 1,029 1,110 (11) 4 (4) 3,476 3,358 4 4,545

Employee expenses 1,606 1,600 1,523 1,578 0 5 2 5,075 4,781 6 6,681

Depreciation 140 200 203 210 (30) (31) (33) 678 638 6 818

PBT 2,836 2,839 2,730 2,572 (0) 4 10 8,557 7,549 13 11,392

Tax 1,003 994 928 921 1 8 9 2,927 2,645 11 3,930

PAT 1,833 1,845 1,802 1,652 (1) 2 11 5,629 4,903 15 7,462

EPS (Rs) 5 5 4 2 11 14 12 15 19

Key highlights

Total AUMs (Rs mn) 244,080 243,412 214,640 234,050 14 4

Average AUMs (Rs mn) 239,065 216,630 227,466 10 5

Borrowings (Rs mn) 204,800 186,270 194,640 10 5

Yield of loans (KS - %) 18.8 19.9 19.1

Borrowings cost (KS - %) 11.4 11.1 11.0

Spread (KS - %) 7.5 8.7 8.1

NIM (KS - %) 9.3 10.0 9.7

Opex/ average assets (%) 4.7 5.1 5.1

RoA (%) 3.1 3.3 2.9

RoE (%) 14.2 15.8 13.1

Asset quality

Gross NPL (Rs mn) 5,195 3,968 5,117 31 2

Net NPLs (Rs mn) 4,443 3,243 4,392 37 1

Gross NPLs (%) 2.1 1.9 2.2

Net NPLs (%) 1.8 1.5 1.9

Operational highlights

Branches (#) 4,242 4,271 4,245 (1) (0)

Gold (weight in tons) 138 116 131 19 5

Value of gold (Rs mn) 371,220 330,600 349,115 12 6

Employees (#) 22,785 24,140 22,882 (6) (0)

LTV (calc) 0.66 0.65 0.67

Loan per gram (Rs) 1,769 1,850 1,787 (4) (1)

Average gold loan per

branch (Rs mn)57 50 55 15 4

Next

9MFY16E

Next

9MFY15

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E

Loan growth 120 113 55 5 (16) 7 12 19 19

NII growth 104 110 73 15 (10) (5) 7 19 18

EPS growth 133 108 52 13 (22) (20) 11 27 20

Banks/Financial Institutions Muthoot Finance


Exhibit 3: Loan growth has been weak in the past; now picking up Quarterly data, 1QFY13-1QFY156


Exhibit 4: Gold prices have declined 9% CYTD and 6% July-to-date Domestic gold price (`/gm)

Source: Bloomberg, Kotak Institutional Equities

NIM declined ~40bps qoq

NIM increased 40bps qoq to 9.3% on a calculated basis. Calculated spreads were down

60bps to 7.5%. Decline in NIM and spreads have come from decline in interest rates without

benefit from lower cost of funds fully flowing through in this quarter.

We expect spreads to improve as borrowing costs moderate by ~10 bps in FY2016E.

Reduction in bank base rates will drive down borrowing cost hereon. Incremental

borrowings are low in the backdrop of moderate loan growth; as such lower marginal

borrowings cost has limited impact on average borrowings cost.

(10)

(6)

(2)

2

6

10

0

70

140

210

280

350

1Q

FY1

3

2Q

FY1

3

3Q

FY1

3

4Q

FY1

3

1Q

FY1

4

2Q

FY1

4

3Q

FY1

4

4Q

FY1

4

1Q

FY1

5

2Q

FY1

5

3Q

FY1

5

4Q

FY1

5

1Q

FY1

6

Loans (LHS) YoY growth (RHS)(Rs bn) (%)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

Jul-1

0

Oct

-10

Jan

-11

Apr-

11

Jul-1

1

Oct

-11

Jan

-12

Apr-

12

Jul-1

2

Oct

-12

Jan

-13

Apr-

13

Jul-1

3

Oct

-13

Jan

-14

Apr-

14

Jul-1

4

Oct

-14

Jan

-15

Apr-

15

Jul-1

5



Exhibit 5: We forecast NIM to expand to 9.5% by FY2016-18E Yield on loans, cost of funds and NIMs, March fiscal year-ends, 2010-2017E (%)


Operating expenses below estimates

Muthoot continues to deliver well on the cost front as total operating expenses raised only

2% yoy to `2.8 bn, 6% below our estimates. Both staff cost and admin expenses growth

were controlled at 4-5% yoy as there was marginal reduction in employee headcount and

number of branches qoq.

We factor cost-to-average assets ratio to decline to 4.2% in FY2016E (compared to 4.4% in

FY2015) as higher loan growth outpaces ~4% yoy increase expected in FY2016E. We factor

cost-to-average assets to further decline to 3.9% by FY2018E as business volumes increase.

Exhibit 6: Operating expenses to assets ratio expectedly peaked in FY2015 Operating expenses to average AUMs, March fiscal year-ends, 2010-18E


7

8

9

10

11

12

13

0

5

10

15

20

25

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E

Yield on loans (LHS-%) Cost of borrowings (LHS-%) NIM (RHS-%)

3.0

3.4

3.8

4.2

4.6

5.0

-

0.5

1.0

1.5

2.0

2.5

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E

Staff expenses (LHS) Non-staff expenses (LHS) Operating expenses (RHS)



Asset quality stable

Muthoot’s gross NPLs were nearly flat at `5.2 bn, 2.1% of loans compared to 2.2% in

4QFY15. Muthoot’s provision expenses declined to `105 mn from `216 mn qoq. This was

driven by lower credit losses of `30 mn. The company maintained its provision coverage at

50bps.

Exhibit 7: Muthoot has been able to control its NPL during down-cycle Key performance metrics, March fiscal year-end, 2011-15 (%)


Exhibit 8: Muthoot is trading at 1.4X one-year forward book One-year forward trading PER and PBR, 2012-2015

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Exhibit 9: Muthoot Finance – change in estimates New and old estimates, March fiscal year-ends, 2016-2018E (` mn)


2011 2012 2013 2014 2015

Gross NPLs (%) 0.3 0.6 2.0 1.9 2.2

Loans (Rs bn) 159 247 260 218 234

Growth 113 55 5 -16 7

-

0.5

1.0

1.5

2.0

2.5

0.0

2.8

5.6

8.4

11.2

14.0

Jul-1

2

Oct

-12

Jan

-13

Apr-

13

Jul-1

3

Oct

-13

Jan

-14

Apr-

14

Jul-1

4

Oct

-14

Jan

-15

Apr-

15

Jul-1

5

Rolling PER (X) (LHS) Rolling PBR (X) (RHS)

2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E

Loans under management 262,574 311,386 370,548 262,574 311,386 370,548 — — —

NIM (%) 9.3 9.6 9.5 9.9 10.1 10.0 — — —

Interest income 45,441 51,656 61,374 46,683 52,517 62,397 (3) (2) (2)

Interest expenses 22,350 24,157 28,867 22,112 23,587 28,149 1 2 3

Net Interest income 23,091 27,500 32,507 24,571 28,931 34,248 (6) (5) (5)

Provisions 355 488 576 355 488 576 — — —

Operating expenses 12,044 13,206 15,214 12,309 13,505 15,556 (2) (2) (2)

Profit before tax 11,392 14,505 17,416 12,607 15,638 18,816 (10) (7) (7)

Tax 3,930 5,004 6,009 4,350 5,395 6,491 (10) (7) (7)

Profit after tax 7,462 9,501 11,408 8,258 10,243 12,324 (10) (7) (7)

EPS (Rs) 19 24 29 21 26 31 (10) (7) (7)

BVPS (Rs) 140 156 174 142 158 178 (1) (2) (2)

New estimates Old estimates New vs old (%)



Exhibit 10: Muthoot Finance – key financial ratios and growth rates March fiscal year-ends, 2013-2018E (%)


2013 2014 2015 2016E 2017E 2018E

Growth in key parameters (%)

Profit and loss statement - yoy (%)

Interest income 18 (9) (13) 7 14 19

Interest costs 21 (7) (20) 6 8 20

Net interest income 15 (10) (5) 7 19 18

Net total income 16 (9) (4) 7 19 18

Provisioning expenses 107 (50) (15) (4) 37 18

Net income (post provisions) 14 (8) (4) 7 18 18

Operating expneses 14 12 6 4 10 15

Staff expenses 30 9 7 6 13 14

Other operating expenses (4) 19 (1) 4 6 18

Depreciation expenses 38 5 77 (3) 7 6

PBT post extraordinaries 14 (21) (14) 11 27 20

Tax 15 (18) (14) 10 27 20

PAT 13 (22) (14) 11 27 20

Balance sheet - yoy (%)

Gold loans 22 (16) 7 12 19 19

Gold loans (incl sell down) 5 (16) 7 12 19 19

Fixed assets 13 8 (19) 29 7 6

Other current assets 76 11 (9) 22 14 15

Total assets 26 (13) 5 14 18 18

Borrowings 56 (18) (2) 17 19 20

Current liabilities (70) 5 51 (5) 20 20

Total liabilities 25 (16) 2 14 19 20

Share capital 0 0 7 0 0 0

Reserves and surplus 32 16 20 10 12 13

Shareholders funds 34 9 19 10 11 12

Key ratios (%)

Interest yield (incl loans sold down) 21.1 20.4 18.8 18.3 18.0 18.0

Interest cost (incl loan sold down) 13.2 11.9 10.7 10.6 9.7 9.7

Spreads 8 8 8 8 8 8

NII/ loans under management 10 9 10 9 10 10

Operating costs/ net income (post provisions) 38.9 47.6 52.9 51.4 47.7 46.6

Cash/ total assets + loan sold down 4.6 8.0 6.5 6.3 5.9 5.5

Tax rate 33.6 34.6 34.8 34.5 34.5 34.5

Debt/ equity (X) 6.1 4.7 3.8 4.1 4.4 4.7

Du Pont analysis

(% of average assets including loans sold down)


Other income 0.1 0.2 0.2 0.2 0.2 0.2

Credit costs 0.3 0.2 0.1 0.1 0.1 0.1


PBT post extraordinaries 5.4 4.3 3.9 4.0 4.4 4.5

1-tax rate 0.7 0.7 0.7 0.7 0.7 0.7

RoA 3.6 2.8 2.6 2.6 2.9 2.9

Average assets / average equity (X) 8.2 6.7 5.6 5.4 5.6 6.0

RoE 29.3 19.0 14.3 14.0 16.2 17.4



Exhibit 11: Muthoot Finance – income statement and balance sheet March fiscal year-ends, 2013-2018E (` mn)


2013 2014 2015 2016E 2017E 2018E

Income statement (Rs mn)

Interest income 53,523 48,934 42,623 45,441 51,656 61,374

Interest costs 28,253 26,259 21,064 22,350 24,157 28,867


Other income 347 540 624 700 700 700

Net total income 25,618 23,215 22,183 23,791 28,200 33,207

Provisioning expenses 868 438 371 355 488 576

Net income (post provisions) 24,750 22,777 21,811 23,436 27,712 32,631

Operating expneses 9,638 10,841 11,533 12,044 13,206 15,214

Staff expenses 5,453 5,917 6,304 6,681 7,538 8,629

Other operating expenses 3,731 4,448 4,387 4,545 4,797 5,660

Depreciation expenses 454 476 841 818 872 926

PBT post extraordinaries 15,112 11,936 10,279 11,392 14,505 17,416

Tax 5,071 4,135 3,573 3,930 5,004 6,009

PAT 10,041 7,801 6,705 7,462 9,501 11,408

No of shares (mn) 372 372 397 397 397 397

EPS - adjusted for bonus (Rs) 27 21 17 19 24 29

BVPS - adjusted for bonus (Rs) 106 115 128 140 156 174


Assets

Gold loans 260,004 218,620 234,050 262,574 311,386 370,548

Investments 825 354 385 385 385 385

Fixed assets 3,030 3,269 2,642 3,409 3,634 3,859

Current assets 30,304 33,695 30,616 37,483 42,810 49,053

Cash and bank balances 13,420 20,489 17,366 19,103 21,013 23,114

Other cash balance 13,420 13,420 17,366 19,103 21,013 23,114

Other current assets 16,884 13,206 13,250 18,380 21,797 25,938

Total assets 294,163 255,938 267,693 303,851 358,215 423,845

Liabilities

Borrowings 240,889 198,620 194,640 227,053 271,024 324,180



Share capital 3,717 3,717 3,971 3,971 3,971 3,971

Reserves and surplus 33,639 38,928 46,855 51,698 57,865 65,269


Aggregate loan book (incl sell down)

Loans under management 260,004 218,620 234,050 262,574 311,386 370,548

Total assets under management 294,163 255,938 267,693 303,851 358,215 423,845


Long term loans and non-fund based activities are key drivers.

SKS reported strong performance during 1QFY16 with 24% growth in PAT to `610 mn (our

estimate of `480 mn) largely driven by 72% yoy and 15% qoq loan growth, 60% growth in

other income. SKS’s focus on long tenure products (driving 73% of the qoq loan growth) and

increasing its non-fund based income (BC origination and third party distribution) were the key

drivers.

SKS Bank: A strong model but tall task ahead.

We believe that SKS’s small finance bank, if granted a license, will provide a banking platform

for microfinance loans, raise micro deposits and distribute third-party products aided by local

touch points/ BCs. Large equity infusion (Rs29 bn, 43% of current market cap) to comply with

shareholding requirements of RBI and costs of local touch points will temper SKS’s profitability

in the initial years. We however believe that improvement in productivity of the sales force will

partially offset the same. Cost of regulatory compliance will be negligible as SKS’s loan book

qualifies to be PSL and likely lower borrowings cost from debt markets/ interbank will offset the

carry of CRR and SLR.

Raise price target; factor in prospects of the bank

We are revising our price target for SKS to `580/ share. At our price target, SKS will trade at

4.5X PBR FY2017E. The valuation is undoubtedly rich despite the high growth trajectory of SKS.

We however take cognizance of likely conversion of SKS into a bank. Our price target reflects

40% probability of SKS Bank and 60% as MFI. At the fair value estimate, SKS (MFI) will trade at

3.5X PBR FY2017E. At its fair value, SKS’s banking model will trade at 3X PBR FY2017E. Exhibit

2 shows the sensitivity of the price target to the valuation multiple for the bank and probability

assigned for conversion to the banking format.

SKS Microfinance (SKSM) Banks/Financial Institutions

Strong performance. SKS reported stellar results with 15% qoq and 72% yoy loan

growth driving 60% growth in earnings before tax. Focus on higher ticket loans and fee

income (distribution income and loan origination fee for banks) provides the icing on its

strong business momentum. We believe that SKS is one of the most deserving

candidates to get a small bank license and is well placed to migrate to a bank. We

revise estimates and discuss the likely banking model of SKS. Our revised price target

(`580 versus `460 earlier) factors SKS’s high growth trajectory and prospects of a bank.

ADD

JULY 23, 2015

RESULT


Price (`): 537


BSE-30: 28,505

QUICK NUMBERS

Loan growth of

72% yoy and 15%

qoq

24% yoy PAT

growth

Retain ADD; price

target `580

SKS Microfinance







MFs 13.5 BVPS 83.0 102.5 130.3


Absolute 16.2 16.7 91.0 ROE (%) 25.0 21.6 23.7



544-260

67.9

Banks/Financial Institutions SKS Microfinance


Exhibit 1: SKS Microfinance – Quarterly trends March fiscal year-ends, 1QFY15-1QFY16 (` mn)


(% chg.)


2QFY16-

4QFY16

2QFY15-

4QFY15

Interest income 1,950 1,600 1,030 1,517 22 89 29 6,785 4,630 47

Income on loans sold down 220 250 240 250 (12) (8) (12) 632 430 47

Interest expenses 1,010 700 480 854 44 110 18 3,270 2,310 42

Net interest income 1,160 1,150 790 913 1 47 27 4,147 2,750 51

Credit cost 72 50 (19) 107 44 (479) (33) 289 119 143

NII (post credit cost) 1,088 1,100 809 806 (1) 34 35 3,858 2,631 47

Other income 653 270 410 494 142 59 32 1,892 1,300 46

Loan processing fees 150 100 100 130 50 50 15 586 360 63

Income on investments 210 140 90 140 50 133 50 440 350 26

Recovery against written off loans 40 30 90 40 33 (56) - 120 170 (29)

Others- distribution fees 252 120 130 180 110 94 40 748 420 78

Operating expenses 952 770 740 836 24 29 14 3,336 2,470 35

Administration expenses 233 210 190 225 11 23 4 691 650 6

Employee expenses 709 550 540 600 29 31 18 2,598 1,780 46

Depreciation 10 10 10 11 (1) (1) (11) 48 40 19

PBT 790 600 493 464 32 60 70 2,414 1,447 67

Tax 180 120 - 59 50 493 59

PAT 610 480 493 405 27 24 51 1,921 1,388 38

EPS (Rs) 5 4 3 24 51 15 11 38

Other operational highlights

Total AUM (Rs mn) 48,110 29,280 41,840 64 15

Non-AP 47,970 43,900 27,830 41,710 9 72 15

AP 140 1,450 130 (90)

Disbursements (Rs mn) 23,770 11,600 24,940 105 (5)

Disbursements ('000) 1,778 1,089 1,857 63 (4)

Ticket size (Rs) 13,369 10,652 13,430 26 (0)

Yeild measurement (%)

Reported ratios

Gross y ields 22.1 22.1 24.2

Portfolio y ield 16.6 16.6 18.9

F inancial cost 6.3 6.2 9.1

Borrow ings cost 11.6 12.6 11.8

Calculated ratios

Yields (non-AP book) 23.1 23.1 21.5

Borrow ings cost 11.9 12.0 11.7

Costs/ income 52.5 61.7 59.4

NIM (incl. income from securitisation) 10.3 11.2 9.9

Asset quality (non-AP, %)

Gross NPL (%) 0.2 0.2 0.1

Net NPLs (%) 0.2 0.2 0.1

Collection efficiency (%) - 99.9 99.8

CAR (%) 27.2 39.6 31.7

Debt+loans sold down/ equity (X) 4.0 2.7 4.3

(% chg.)

SKS Microfinance Banks/Financial Institutions


Exhibit 2: We assume 40% probability for SKS's conversion to a bank Sensitivity to valuation multiples and probability for SKS Bank, March fiscal year-ends, 2017E (Rs/ share)

Notes: (a) We value SKS Microfinance at 3.5X PBR.


Key highlights of 1QFY16 results

LTL loans drive loan growth

SKS’s average ticket size increased to Rs13,369, up 26% yoy but flat qoq. Long term loans

(LTL), loan with tenure of 104 weeks for borrowers who have completed at least two loan

cycles contributed to 73% of the qoq loan growth; the average loan size in LTL is

Rs29,641.Despite increase in loan size, SKS’s average ticket remains lower than peers (see

Exhibit 3 and 4) and provides significant scope for growth.

SKS increased its concentration in Maharashtra but declined in West Bengal. It reported a

strong growth in loan book across states, however growth has been particularly high in

Maharashtra (120bps qoq increase in share in SKS’s loan book to 12.8%). West Bengal’s

share decreased 80bps to 9.4%. Top three states in terms of concentration are Orissa

(17.1%), Karnataka (14.9%) and Maharashtra (12.3%).

We forecast loan book of `61 bn by March 2016 and `84 bn by March 2017. We believe

that SKS’ growth will be driven by branch expansion of about 10% yoy leading to 25%

growth in active borrowers and increase in average ticket size of 15% in FY2016E followed

by 10% annual growth in FY2017E and FY2018E.

Exhibit 3: SKS’s average loan disbursement is lower than peers Average disbursement per loan, March fiscal year-end, 1QFY14-1QFY16 (Rs)

Source: MFIN, Company

Exhibit 4: SKS’s average loan size is lower than peers Average loan per borrower, March fiscal year--end, 1QFY14-1QFY16 (Rs)

Source: MFIN, Company

Probability of conversion to bank (%)

15% 25% 40% 50% 100%

2.0 464 469 477 482 508

2.5 483 501 528 546 635

3.0 502 533 578 609 762

3.5 521 564 629 673 889

4.0 540 596 680 736 1,016 Valu

ati

on

mu

ltip

le (

X)


Bandhan 16,128 16,883 17,508 17,524 18,971 NA 22,340 21,886 NA

Equitas 11,766 12,169 12,713 12,844 13,889 13,780 13,714 14,116 NA

Janalaxmi 18,440 18,763 19,396 19,677 19,678 20,162 20,295 20,682 NA

SKS 11,194 10,998 11,998 11,829 10,653 12,052 12,146 12,259 13,369

Ujjvan 17,825 18,300 19,236 19,738 19,917 18,245 20,469 19,918 NA

Total 13,584 13,337 14,780 14,359 14,926 15,736 16,194 16,327 NA


Bandhan 9,322 9,277 10,146 11,289 11,078 11,324 12,693 14,598 NA

Equitas 8,009 8,025 8,206 8,253 8,621 9,068 8,985 9,342 NA

Janalaxmi 13,545 13,748 13,838 14,532 14,239 14,473 14,678 16,098 NA

SKS 5,283 5,209 7,775 6,272 5,968 8,524 9,024 11,434 13,014

Ujjvan 11,330 11,646 11,886 12,468 12,667 15,017 15,064 14,908 NA

Total 8,430 8,662 8,927 9,955 9,848 10,313 11,600 13,160 NA



Exhibit 5: Loan book growth is getting diversified Loan book break-up (ex-Andhra Pradesh), March fiscal year-ends, 1QFY13-1QFY15 (%)


Higher investment income and distribution income boost other income

SKS’s other income was high at `653 mn (our estimate of `270 mn),the key reason for

earnings increase.

Higher loan growth has driven higher loan processing fees.

Higher cash on balance sheet (accumulated towards end of March post loan sell down)

has driven high investment income; this will moderate down over the next few months.

Distribution income was driven by (1) fees on distribution of third party products (the

company distributed 0.4 mn worth products in 1QFY16 as compared to 0.26 mn in

4QFY15) and (2) higher fees for originating loans for banks (Rs120 mn versus Rs70 mn

qoq).

Recovery from AP loans was however low.

We are raising our estimates to factor the higher trajectory of fee income from distribution

and loan origination for banks.

NIM improves, SKS will reduce lending rates from July 2015

Margin (calculated, including loan securitization) expanded 40 bps qoq 10.3%. Spread on

balance sheet assets expanded to 11.2% from 9.2% due to higher asset yields qoq as a

consequence of high loan growth in the beginning of the period. SKS had high cash on

balance sheet (Rs17 bn) on March 2015 which declined to Rs10 bn in June 2015. Higher

balance during the quarter boosted investment income; this will decline over the next few

quarters.

The company is clearly in a sweet spot on NIM and has proposed to reduce its lending rates

(for new loans) by 150 bps from 2QFY16. Unlike 3QFY15, SKS is reasonably confident of

handling the transition of change in interest rates after the implementation of its new IT

system.

Other highlights for the quarter

SKS paid tax at MAT rate of 21%. Large write-off of AP loans 1QFY15 and hence did not

provide for any tax liability.

NPL remained low 0.2% of loan book despite high growth at SKS.


State-wise loan book break up (%)

Karnataka 17.6 17.3 15.8 17.2 16.9 15.7 15.4 15.2 14.9

Orissa 15.3 16.1 15.6 14.7 14.9 15.8 17.5 16.8 17.1

Bihar 11.0 10.8 12.5 11.9 11.6 11.7 10.7 11.2 10.6

Maharashtra 12.8 11.3 9.4 11.4 11.7 10.0 9.2 11.6 12.8

West Bengal 9.2 10.4 11.1 11.7 12.2 13.7 12.5 10.9 9.4

Uttar Pradesh 8.8 9.2 9.2 8.3 8.3 8.4 8.9 8.7 9.3

Madhya Pradesh 6.1 6.3 6.5 6.1 5.8 5.7 5.4 5.3 5.3

Kerala 6.2 5.4 6.0 5.5 5.2 5.5 6.3 5.8 6.1

Rajasthan 5.2 4.6 4.6 4.4 4.5 4.3 4.8 4.8 5.0

Jharkhand 3.2 3.4 3.7 3.7 3.8 3.9 3.6 4.1 3.7

Punjab 1.5 1.6 1.9 1.8 1.8 1.8 1.9 1.8 1.7

Haryana 1.3 1.3 1.4 1.3 1.3 1.2 1.4 1.5 1.6

Uttranchal 1.0 1.1 1.3 1.1 1.1 1.0 1.1 1.2 1.2

Chattisgarh 0.9 0.9 1.0 1.0 1.0 1.1 1.2 1.2 1.2



Exhibit 6: SKS Microfinance – key operational highlights March fiscal year-ends, 1QFY14-1QFY16



Other operational highlights

Total AUM (Rs mn) 23,030 22,880 25,830 30,300 29,280 31,300 32,190 41,840 48,110

Non-AP 20,030 20,290 23,640 28,370 27,830 30,430 31,950 41,710 47,970

AP 3,000 2,590 2,190 1,930 1,450 870 240 130 140

Non-AP 20,030 20,290 23,640 28,370 27,830 30,430 31,950 41,710 47,970

On books 16,110 15,750 17,500 17,210 21,860 28,800 27,480 29,230 38,440

off books 3,920 4,540 6,140 11,160 5,970 1,630 4,470 12,480 9,530

Securitization (%) 20 22 26 39 21 5 14 30 20

Disbursements (Rs mn) 8,300 9,780 13,990 15,810 11,600 16,930 15,440 24,940 23,770

Disbursements ('000) 742 889 1,166 1,336 1,089 1,404 1,271 1,857 1,778

Ticket size (Rs) 11,186 11,001 11,998 11,834 10,652 12,058 12,148 13,430 13,369

Operational highlights

Employees 9,959 9,173 8,958 8,932 8,914 8,943 9,089 9,698 10,110

Branches 1,225 1,254 1,256 1,255 1,268 1,268 1,268 1,268 1,268

Centres (total) 213,114 212,895 212,895 228,188 226,856 228,494 229,172 227,125 220,485

Centres (non-AP) 142,534 142,218 150,907 157,511 156,176 157,911 158,451 156,457 149,797

Members (`000) 5,074 5,182 5,491 5,783 5,796 6,091 6,196 6,402 6,391

Members ('000) (non-AP) 3,154 3,262 3,571 3,864 3,877 4,171 4,274 4,482 4,471

Acrtive borrowers ('000) 4,439 4,507 4,744 4,963 5,042 5,268 5,228 5,325 5,351

Acrtive borrowers ('000) (non-AP) 2,729 2,801 3,041 3,262 3,342 3,570 3,540 3,684 3,686

Key operational ratios (non-AP)

Centres/ branch 129 125 132 138 136 144 145 143 137

Borrowers/ branch ('000) 2 2 3 3 3 3 3 3 3

Borrowers/ centre 19 20 20 21 21 23 22 24 25



SKS BANK: HIGHER SALES PRODUCTIVITY, OPERATIONAL CHALLENGES ON MANAGING

LOCAL TOUCH POINTS

SKS Bank will likely migrate loan disbursements to the banking format i.e. loans will be

credited to borrower’s bank account. The banking platform will also permit SKS to mobilize

savings at the bottom of the pyramid (though not very significant) into retail deposits.

However, SKS’s microfinance model entails limited branches and hence it will need support

from local touch point/ banking correspondents to convert the loan/ bank deposits to cash

and/or collect weekly cash installments. SKS’s ability to improve the productivity of its sales

force (wherein cash handling will be now be lower) and managing efficiency of local touch

points will drive its profitability. Prospects and challenges of SKS Bank are discussed in

further detail in our note ‘Understanding the small finance bank model’ dated March 05, 2015.

Low regulatory cost for SKS Bank

The entire loan book of SKS qualifies to be PSL and 30% of the book is deployed in

agriculture and animal husbandry, much higher than the required exposure of 18% to

agriculture. Hence, the cost of compliance for its small finance banks is primarily for

maintaining CRR and SLR. Reduction in SKS’s borrowing’s cost (11-12% currently) on

migration to the interbank window, decline in cash on balance sheet (currently due to loan

sell down and surplus liquidity) will largely offset the aforesaid cost, in our view. Its retail

deposits (from microfinance borrowers and beyond) will however likely remain low; CASA

ratio will be almost negligible in the initial years.

Large capital issuance to comply with promoter shareholding requirements

SKS, if granted a license, will likely float the small finance bank as a 100% subsidiary. The

company will transfer its lending business to the subsidiary. RBI guidelines mandate

promoter to be a domestic entity. SKS has 70% foreign shareholding. It would therefore

need to raise capital from domestic entities to bring down foreign shareholding to 49%. A

back of the envelope calculation suggests that SKS will need to raise `30 bn from domestic

investors.

Exhibit 7: SKS has around 70% foreign shareholding Shareholding pattern of SKS, December 2014 (%)

Source: BSE

Exhibit 8: SKS will need to issue 56 mn share to comply with 49% foreign shareholding cap


Foreign shareholders 70

Promoters 9

FII 46

FDI 2

NRI 5

Others 8

DII 15

Other domestic holders 15

CMP (Rs) 537

Shares (mn) 126

Market capitalization (Rs bn) 68

Value of foreign holding (Rs bn) 48

Domestic capital issuance (Rs bn) 30

Issuance price (Rs/ share) 530

Shares issued (# mn) 56

Foreign holding post money (%) 49

Market cap post money (Rs bn) 97



Exhibit 9: SKS bank - Key parameters, ratios and financials March fiscal year-ends, 2015-2022E


2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E Comments

Key growth rates ( YoY %)

Balance sheet

Loans 64.8 51.3 124.0 43.0 34.5 32.9 31.0 29.1 We expect loan growth to be high

Investments — 10.0 69.5 46.4 41.0 36.8 33.0 We expect strong growth in investments in FY2017E

to reflect SLR requirements

Fixed assets (16.7) 15.0 200.0 25.0 25.0 25.0 25.0 25.0

High growth in fixed assets in FY2017E to roll out

the bank infrastructure; growth to in line with loan

growth thereafter

Current assets 135.0 10.0 (70.3) 53.4 40.1 35.5 32.9 30.3

We factor decline in cash on balance sheet as (1)

SKS stops loan sell down, (2) reduces liquidity on

balance sheet and (3) trasanctions move to

electronic format

Total assets 89.6 32.6 92.2 47.4 36.7 34.5 32.2 29.9

Income statement

NII 53.1 48.6 98.3 60.1 26.0 24.1 23.7 26.4

PAT 168.7 36.0 140.4 46.1 24.6 19.5 18.3 23.3

Key ratios and parameters (%)

Yield on loans 25.5 24.3 24.0 23.0 21.5 20.7 20.0 19.8 We factor decline in yields, as SKS trasfers benefit of

lower costs of funds

Borrowings cost 10.2 10.2 10.0 10.0 9.0 8.8 8.6 8.4 We factor a lower borrowings costs for the bank as

SKS shifts to inter-bank borrowings

Spread 15.3 14.2 14.0 13.0 12.5 12.0 11.5 11.4

NIM 8.2 8.6 13.4 14.5 13.0 11.8 10.9 10.4 Lower leverage improves NIM

Cost-to-income 61.1 54.9 40.9 34.7 35.9 37.7 39.9 40.8

Cost-to- assets 8.9 7.8 6.4 5.2 4.8 4.6 4.6 4.5

Tax rate 3 19 21 33 33 33 33 33

ROA 5.2 4.7 6.8 6.1 5.4 4.7 4.2 4.0

AUM/equity 4.8 4.7 3.1 3.0 3.7 4.4 5.1 5.8 Leverage to decline substantially post capital infusion

ROE 25.0 21.8 20.7 18.2 20.0 20.9 21.6 23.0

Cash/borrowings 50.6 40.1 5.0 5.0 5.0 5.0 5.0 5.0 This reflects cash to meet CRR

SLR 0.0 0.0 24.0 24.0 24.0 24.0 24.0 24.0

Income statement (Rs mn)

Interest income 5,660 8,753 16,690 26,874 34,665 44,580 56,785 72,861

Off-balance sheet 670 852 506 — — — — — We expect SKS to stop securitization

Others 440 650 660 1,778 2,754 3,943 5,463 7,353 This reflects Interest income on SLR securities

Interest costs 2,790 4,343 6,130 9,875 13,770 19,169 25,949 34,314

Net interest income 3,980 5,912 11,725 18,776 23,649 29,354 36,299 45,899

Other income 1,270 1,896 2,520 3,220 4,453 5,491 6,779 8,350 This primarily reflects loan procesing fee at 1.5% of

disbursements

Net total income 5,250 7,808 14,245 21,996 28,102 34,845 43,078 54,249

Provisioning expenses 100 361 630 935 1,290 1,723 2,271 2,951

Operating expneses 3,210 4,288 5,827 7,641 10,096 13,138 17,171 22,154

Staff expenses 2,320 3,306 4,546 6,095 8,229 10,885 14,451 18,869

Other operating expenses 840 924 1,109 1,331 1,597 1,916 2,299 2,759

Depreciation expenses 50 58 173 216 270 337 421 526

PBT before extraordinaties 1,940 3,159 7,788 13,421 16,717 19,984 23,635 29,144

Tax 59 600 1,636 4,429 5,516 6,595 7,800 9,617 We factor full tax rate from FY2018E

PAT 1,881 2,559 6,153 8,992 11,200 13,389 15,836 19,526

Dividend - - 1,846 2,698 3,360 4,017 4,751 5,858 We factor dividend payout at 30%

EPS (Rs) 15 20 34 49 62 74 87 107

BPS (Rs) 83 103 256 288 328 376 433 502


Assets

Loans 28,370 42,931 96,152 137,535 184,935 245,786 322,060 415,770 We expect SKS to retain focus on microfinance loans

post conversion to a bank

Investments 2 2 17,591 29,810 43,630 61,525 84,152 111,930 Reflects investments in SLR

Fixed assets 100 115 345 431 539 674 842 1,053

Current assets 17,528 19,281 5,728 8,790 12,314 16,687 22,175 28,891

Cash and bank 16,590 18,249 3,665 6,210 9,090 12,818 17,532 23,319 We factor cash on balance sheet to decline as

trasanctions move to electronic format

Other current assets 938 1,032 2,064 2,580 3,224 3,869 4,643 5,572

Total assets 46,990 62,329 119,816 176,566 241,417 324,673 429,229 557,644

Liabilities

Borrowings 32,800 45,494 73,295 124,209 181,791 256,356 350,635 466,377 CASA ratio will be low

Total liabilities 36,530 49,310 73,295 124,209 181,791 256,356 350,635 466,377

Share capital 1,260 1,260 1,817 1,817 1,817 1,817 1,817 1,817 We factor large dilutiion to bring foreign holding

down to 49%

Reserves and surplus 9,200 11,759 44,704 50,540 57,810 66,500 76,777 89,451

Shareholders funds 10,460 13,019 46,521 52,357 59,626 68,316 78,594 91,267



Exhibit 10: SKS Microfinance – key growth rates and financial ratios March fiscal year-ends, 2013-18E (%)


2013 2014 2015 2016E 2017E 2018E

Growth in key parameters

Profit and loss statement

Interest income (39) 79 44 54 37 30

Income on loan securitization 68 (4) 20 27 41 36

Interest costs (29) 50 30 53 32 29

Net interest income (26) 73 53 50 38 30

Other income (13) 21 76 49 24 25

Net total income (26) 58 58 50 34 29

Provisioning expenses (79) (94) (33) 261 61 36

Net income (post provisions) (96) (1,017) 62 45 33 29

Operating expneses (38) (6) 30 34 30 32

Staff expenses (34) (4) 40 43 33 35

Other operating expenses (45) (8) 9 10 20 20

Depreciation expenses (36) (38) 25 15 15 15

PBT before extraordinaties (77) (124) 177 65 38 25

Tax (100) — — — — —

PAT (78) (124) 169 35 38 25

EPS (Rs) (85) (124) 131 35 38 25

BPS (Rs) (39) 18 96 24 27 26

Balance sheet statement

Loans 41 28 38 47 37 35

Investments — — — 10 10 10

Fixed assets (45) 6 (17) 15 15 15

Current assets 36 (23) 135 10 10 10

Total assets 49 (1) 90 33 28 28

Borrowings 58 (5) 114 39 30 30

Current liabilities 18 41 16 10 10 10

Total liabilities 69 (5) 81 35 29 29

Share capital 50 — 16 — — —

Reserves and surplus (21) 24 162 28 30 29

Shareholders funds (9) 18 128 24 27 26

Yield on loans (incl AP), %)

Yield on loans on AUM (ex-AP, %) 26.7 28.5 25.5 24.3 23.5 22.5

Yield on loans on BS (ex-AP, %) 26.7 28.5 25.5 24.3 23.5 22.5

Yield on loans including securitized loans (%) 13.8 16.7 17.5 18.6 18.1 17.4

Cost of borrowings (%) 9.4 11.7 10.2 10.0 10.0 10.0

Spread (%) 17.2 16.8 15.3 14.3 13.5 12.5

NIM -KS (%) 4.6 7.4 8.2 8.6 8.7 8.4

NIM incl. securitized loans (%) 8.1 9.7 10.1 10.3 10.3 10.0

Yield on securtized loans (%) 6.9 5.4 5.2 5.5 5.5 5.5

Cost-income (%) 125.1 74.4 61.1 54.6 52.7 53.7

Cost-assets (%) 12.5 9.9 8.9 7.8 7.8 8.0

RoE break-up (percentage of AUM ex-AP)

NII 7.5 9.6 11.0 11.5 11.3 10.8

Other income 3.0 2.7 3.5 3.7 3.3 3.0

Fee income 1.1 1.3 1.3 1.4 1.5 1.5

Provisioning expenses 12.1 0.6 0.3 0.7 0.8 0.8


Staff expenses 8.6 6.2 6.4 6.4 6.0 6.0

RoA pre-tax (14.8) 2.6 5.4 6.2 6.1 5.6

Tax rate 1.0 1.0 1.0 0.8 0.8 0.8

RoA (14.8) 2.6 5.2 4.9 4.8 4.4

AUM/equity 4.9 6.3 4.8 4.4 4.9 5.3

RoE (72.4) 16.5 25.0 21.6 23.7 23.4



Exhibit 11: SKS Microfinance – key financial statements March fiscal year-ends, 2013-18E (` mn)


2013 2014 2015 2016E 2017E 2018E

Income statement

Interest income 2,199 3,930 5,660 8,735 11,944 15,511

Income on loan securitization 583 560 670 852 1,198 1,625

Other interest income 148 250 440 650 700 800

Interest costs 1,427 2,140 2,790 4,280 5,646 7,270


Other income 595 720 1,270 1,896 2,360 2,958

Loan origination fees 230 340 460 736 1,090 1,470

Net total income 2,098 3,320 5,250 7,853 10,556 13,625

Provisioning expenses 2,444 150 100 361 581 788

Net income (post provisions) (346) 3,170 5,150 7,492 9,975 12,837

Operating expneses 2,626 2,470 3,210 4,288 5,563 7,319

Staff expenses 1,727 1,660 2,320 3,306 4,388 5,913

Other operating expenses 835 770 840 924 1,109 1,331

Depreciation expenses 64 40 50 58 66 76

PBT before extraordinaties (2,971) 700 1,940 3,204 4,412 5,517

Tax — — 59 673 927 1,159

PAT (2,971) 700 1,881 2,531 3,486 4,359

Tax rate (%) — — 3 21 21 21

Dividend — — — — — —

Dividend tax — — — — — —

Outstanding shares (# mn) 108 108 126 126 126 126

EPS (Rs) (27) 6 15 20 28 35

BPS (Rs) 36 42 83 103 131 165

Balance sheet

Loans 15,310 17,210 28,370 42,931 58,716 79,161

Investments 2 2 2 2 2 3

Fixed assets 113 120 100 115 132 152

Current assets 9,688 7,458 17,528 19,281 21,209 23,330

Total assets 25,110 24,790 46,990 62,329 80,060 102,645

Liabilities

Borrowings 16,180 15,310 32,800 45,522 59,385 77,192


Provisions 2,920 1,910 261 — — —


Share capital 1,082 1,082 1,260 1,260 1,260 1,260

Reserves and surplus 2,822 3,510 9,200 11,731 15,217 19,576


Loans under management

Loans on balance sheet 15,310 17,210 28,370 42,931 58,716 79,161

Loans outside balance sheet 8,280 13,090 13,470 18,399 25,164 33,926

Total loans under management 23,590 30,300 41,840 61,330 83,881 113,087


1QFY16—a strong quarter on all counts

PVR reported an excellent quarter on all counts—(1) footfalls grew 25% yoy to 19 mn (KIE 17.9

mn) powered by the box office success of a number of Bollywood and Hollywood movies (Tanu

weds Manu returns, PIKU, ABCD 2, Fast & Furious 7, Avengers 2, etc.), (2) F&B spends per head

(SPH) increased 16% yoy to `74 and F&B gross margin improved to 73% from 69%. (3)

average ticket price (ATP) was up 4% yoy, and (4) ad revenues grew 27% yoy (18% for

comparable properties). Strong all round performance resulted in EBITDA margin expansion of

800 bps yoy to 23% aided by 600 bps yoy increase in occupancy to 38%. EBITDA at `1.13 bn

was up 106% yoy. Net profit at `580 mn was higher than that reported for full year FY2015.

We note that multiplex business has high operating leverage—a 200 bps increase in occupancy

impacts EBITDA by 20-25%.

1Q content performance can’t be extrapolated, but we like the blueprint

The solid performance of PVR highlights: (1) there is strong latent demand for good content.

Comparable properties’ footfalls grew 16% yoy, (2) a big-star (with one of the three Khans)

blockbuster movie is not ‘must’ for a good quarter, (3) four of the top 5 movies were sequels,

all of which grossed higher collections than the original movie/previous sequel, and (4) English

content contributed 30% to PVR’s revenues in 1Q (versus 18-20% in FY2015) boosted by the

success of sequels. 1Q doesn’t necessarily insure stable content performance in the future, but

we believe it should not be dismissed as one-off. It demonstrates that Bollywood can reduce

content volatility over time with more sequels. Further, better traction for English content would

add stability to multiplex businesses. We believe this theme would play out gradually over time.

We continue to like the PVR story; retain our BUY rating

PVR, India’s largest multiplex chain, exhibits leadership on all fronts—premium location

presence and branding, organic expansion, monetization of footfalls (F&B/ad revenues) and

profitability. It is well positioned to participate in the strong multi-year growth of multiplexes

supported by demographics, rising income levels, propensity for movies and huge supply of

content. We raise FY2016-17E EBITDA estimates by 19-21% and TP to `900 from `800, valuing

it at 12X EV/EBITDA.

PVR (PVRL) Media

Blockbuster quarter. PVR delivered a historic quarter on all counts – more remarkable

as this was without any help from blockbuster Bollywood movies (scheduled over 2Q-

3Q). Since content continues to rule (not necessarily from Bollywood), its

unpredictability constrains us from extrapolating PVR’s YTD FY2016E performance

beyond FY2016. We incorporate 1Q, build a strong 2Q, incorporate DT cinemas

acquisition and raise FY2016-17E EBITDA estimates by 19-21% and TP to `900 (12X

FY2017E EV/EBITDA) from `800. Retain BUY.

BUY

JULY 23, 2015

RESULT

Coverage view: Neutral

Price (`): 858


BSE-30: 28,505

PVR



Market Cap. (Rs bn) EPS growth (%) (72.0) 618.2 32.1




MFs 8.9 EBITDA (Rs bn) 2.1 3.4 4.1


Absolute 30.3 37.1 32.4 ROE (%) 3.7 18.9 17.0



872-572

35.6

PVR Media


Key takeaways from 1QFY16 and conference call highlights

There is strong latent demand for good content. A 16% yoy growth in footfalls of

comparable properties’ (same stores) is the highest in the past 3 years. It affirms that

there is strong demand notwithstanding the lackluster consumer discretionary spend. We

note that Bollywood movies released in 1Q were neither blockbusters nor exceptionally

good yet did good business. Additionally, PVR’s success at taking a 16% increase in F&B

spends per head is commendable

Growing penchant for English movies: Three English movies delivered strong box

office performance in 1Q (Fast & Furious 7, Avengers 2 and Jurassic World 2).

Interestingly, these three movies grossed between `700 mn and `1bn. We are pleasantly

surprised by the collections of English movies. Note that each of these movies have more

than doubled its box office collections in India as compared with its previous sequel. This

is encouraging and augurs well for PVR as we expect a steady supply of Hollywood

movies.

Success of Bollywood sequels. 1Q saw the success of two sequels ‘Tanu weds Manu

returns’ and ABCD 2. The net box office collections (NBOC) of these movies were almost

4X/3X that of their original versions. We believe the success of these sequels would

trigger more producer and investment interest in sequels. We note that Hollywood has

succeeded in reducing content volatility by producing sequels that now contribute

disproportionately to Hollywood box office. Sequels have the benefit of tried and tested

premises that have loyal audiences and hence can generate recurring revenue streams.

Strong start to 2QFY16. The management indicated that July 2015 has been the

strongest month in the history of Indian box office powered by the success of mega

hits—Bahubali and Bajrangi Bhaijaan.

Impressive improvement in F&B spends. PVR’s F&B spends per head (SPH) increase

16% yoy to `74. PVR has demonstrated strong growth in SPH on a consistent basis led by

new food offerings, innovative packaging and increased convenience in ordering food. In

addition to this, the company has increased gross margin of F&B business by about 400

bps to 73% at consolidated level. The management indicated that this was driven by

better negotiations with vendors and moving production of few food offerings in house,

such as pizza, corn etc.

Smart growth in ad revenues. PVR’s ad revenues grew 27% yoy led by 18% growth in

comparable properties’ (same store) ad revenues and balance from screen additions. The

growth in comparable properties was driven by yields, volumes and innovations such as

increase in off-screen advertising. The management has guided 18-20% growth in ad

revenues in FY2016.

DT Cinemas acquisition. The management indicated that it would take 90-120 days to

procure approvals for DT Cinemas acquisition.

Summary of changes to estimates

We raise our FY2016E revenues/EBITDA estimates by 4/19% as we incorporate 1Q

outperformance of estimates and build in a strong 2QFY16. We have also incorporated the

DT Cinemas acquisition (expected early 4QFY16) and factored in the equity dilution (5 mn

shares issued to Multiples Private Equity at `700/share). We build EBITDA of `350 mn from

DT Cinemas in FY2017E as against management guidance of about `450 mn. The

contribution of DT Cinemas to FY2016 financials would be negligible as 4Q is a seasonally

weak quarter. An increase in our margin estimate is driven by a marginal increase in

occupancy forecast, higher gross margin on F&B sales and impact of acquisition (DT Cinemas

margins expected to be higher than PVR after synergy benefits).

Media PVR


Exhibit 1: Interim results of PVR Limited (PVRL), March fiscal year-ends (` mn)

chg (%)


Total revenues 4,860 4,461 3,623 2,996 9 34 62

Ticket sales 2,742 2,524 2,032 1,579 9 35 74

F&B sales 1,298 1,164 890 692 12 46 88

Advertising 457 423 358 381 8 27 20

Other operating revenues 364 350 343 344 4 6 6

Total expenditure (3,736) (3,533) (3,075) (2,888) 6 21 29

Film hire costs (1,137) (1,073) (875) (630) 6 30 81

F&B consumption (346) (355) (276) (211) (3) 25 64

Employee expenses (417) (390) (341) (358) 7 22 17

Rent (774) (690) (661) (678) 12 17 14

Repairs and maintenance (137) (150) (121) (142) (9) 13 (4)

Electricity & CAM (548) (450) (486) (416) 22 13 32

Movie production and distribution — — (33) —

Other expenses (377) (425) (282) (454) (11) 34 (17)

EBITDA 1,125 928 547 108 21 106 946

EBITDA Margin (%) 23.1 20.8 15.1 3.6

Other income 8 15 12 20 (45) (31) (58)

Finance costs (218) (210) (192) (203) 4 13 7

Depreciation (292) (330) (291) (253) (12) 0 15

Exceptional items (33) — — (22)

Pretax profits 590 403 75 (351) 685

Taxes (6) — (1) (5)

Net profit before minorities 584 403 75 (356)

Minority interest (4) — 2 (1)

Net profit 580 403 77 (357) 658

EPS (Rs/share) 14.0 9.7 1.8 (8.6)

Key operational metrics

Screens (#) 467 467 444 464

Footfalls (mn) 19.0 17.9 15.2 12.2 6 25 56

Average ticket price (ATP) (Rs) 183 182 176 168 0 4 9

F&B spends per head (SPH) (Rs) 74 72 64 62 3 16 19

Ad revenues/screen (annualized) (Rs mn) 3.9 3.6 3.3 3.3 8 18 18

Film hire costs as % of ticket sales 41.5 42.5 43.1 39.9

Rent as % of sales 15.9 15.5 18.3 22.6

F&B COGS as % F&B sales 26.7 30.5 31.1 30.4

Comparable properties (same store) growth (%)

Footfalls 15.9 (13.9) (18.5)

Average ticket price (ATP) 5.0 4.1 6.0

F&B spends per head (SPH) 16.0 18.5 11.0


PVR Media


Exhibit 2: Revised earnings estimates of PVR, FY2016E-17E (` mn)

2016E 2017E 2016E 2017E 2016E 2017E

Ticket sales (net) 10,356 12,666 10,085 11,821 2.7 7.2

F&B sales 4,924 6,468 4,651 5,762 5.9 12.2

Ad revenues 2,056 2,535 1,936 2,248 6.2 12.8

Other operating income 1,414 1,577 1,451 1,642 (2.6) (4.0)

Total revenues 18,750 23,247 18,123 21,473 3.5 8.3

Film hire charges (4,401) (5,510) (4,296) (5,112) 2.4 7.8

F&B consumption (1,354) (1,779) (1,395) (1,700) (2.9) 4.6

Employee costs (1,722) (2,249) (1,680) (1,971) 2.5 14.1

Rent (3,312) (4,032) (3,355) (4,063) (1.3) (0.7)

Other operating costs 26,133 32,725 25,979 30,929 0.6 5.8

Total operating costs (15,344) (19,156) (15,253) (18,083) 0.6 5.9

EBITDA 3,406 4,091 2,870 3,390 18.7 20.7

PAT 1,201 1,587 642 977 87.1 62.4

EPS (Rs/share) 25.8 34.1 15.5 23.5 67.0 45.0

Key assumptions

EBITDA margin (%) 18.2 17.6 15.8 15.8

Screen additions (#) 89 75 65 65

Footfalls (mn) 71 81 68 76 3.1 6.4

ATP gross (Rs) 187 200 187 196 — 1.9

SPH gross (Rs) 75 85 73 81 2.7 5.5

Ad revenue growth (%) 22 23 15 16

Revised Previous Change (%)


Media PVR


Exhibit 3: Net box office collections (NBOC) of promising movies, March fiscal year-ends

Movie NBOC (Rs mn) Movie NBOC (Rs mn) Movie NBOC (Rs mn)

Yeh Jawaani hai Deewani 1,830 Holiday - A Soldier is Never Off Duty 1,100 Tanu Weds Manu Returns 1,510

Aashique 2 780 2 States 1,020 ABCD 2 1,042

Raanjhnaa 589 Ek Villan 989 Fast And Furious 7 979

Shootout At Wadala 540 Humshakals 557 Gabbar Is Back 788

Iron Man 3 480 The Amazing Spider-Man 2 510 Piku 778

Fast & Furious 6 420 Heropanti 507 Jaurassic World 767

Mein Tera Hero 506 Dil Dhadakne Do 763

The Amazing Spider-Man 2 510 The Avengers: Age of Ultron 731

X-Men: Days of Future Past 420

Total 4,639 Total 6,119 Total 7,357

Fukrey 340 Bhoothnath Returns 355 Hamari Adhuri Kahani 323

Ghanchakkar 310 Revolver Rani Detective Byomkesh Bakshy! 251

Yamla Pagla Deewana 2 270 Bombay Velvet 221

Go Goa Gone 260

Ek Thi Dayaan 250

Nautanki Saala 215

Chashme Baddoor 420

Total 2,065 Total 355 Total 795

Chennai Express 2,185 Kick 2,140 Bahubali

Bhaag Milkha Bhaag 1,089 Singham Returns 1,397 Bajrangi Bhaijaan

Grand Masti 938 Humpty Sharma ki Dulhania 752 Terminator Genisys (3D / Imax 3D)

Satyagraha 620 Entertainment 628 Mission Impossible : Rogue Nation (Imax)

Once upon a time in Mumbai Again 556 Mary Kom 559 The Fantastic Four (Imax)

Total 5,389 Total 5,476 Brothers

Suddh Desi Romance 452 Mardaani 350 Bangistaan

Madras Café 418 Finding Fanny 276 All Is Well

Phata Poster Nikla Hero 365 Daawat-e-Ishq 248 Kya Kool Hain Hum 3

Lootera 230 Khoobsurat 248 Katti Batti

Total 1,465 Total 1,122

Dhoom 3 2,613 PK 3,243 Wazir (Farhan Akhtar, Amitabh Bachchan)

Krrish 3 1,987 Happy New Year 1,884 Singh Is Bling (Akshay Kumar)

Goliyon Ki Raas-leela Ram-Leela 1,056 Bang Bang 1,449 Jazba

R Rajkumar 661 Action Jackson 576 Shaandaar

Besharam 540 Haider 501 Spectre (Imax)

Boss 524 Prem Ratan Dhan Payo (Salman Khan)

Tamasha (Ranbir Kapoor, Deepika)

Total 7,381 Total 7,652 Dilwale (SRK, Kaajol)

Bullet Raja 363 The Shaukeens 210 Hera Pheri 3

Singh Saab The Great 267 Star Wars : The Force Awakens (3D / Imax 3D)

Bajirao Mastaani (Deepika, Ranveer Singh)

Total 629 Total 210

Gunday 729 Baby 788 Airlift (Akshay Kumar)

Jai Ho 1,081 MSG: The Messenger 672 Fitoor (Aditya Roy Kapoor, Katrina Kaif)

Queen 564 Baadshaho (Ajay Devgan)


Shaadi ke Side effects 374 Roy 406

Yaariyan 369 Tevar 372

Haasi to Faasi 352 Badlapur Don't Miss The Beginning 356

Highway 288 NH 10 293

Ragani Mms 2 459


FY2016

4Q

Hits

Flops

FY2014 FY2015

2Q

Hits

Flops

3Q

Hits

Flops

Hits

1Q

Flops


PVR Media


Exhibit 4: Net box office collections (NBOC) (` mn)

365

731

0

200

400

600

800

Avengers 1 (2012) Avengers 2 (2015)

NBOC (Rs mn)



420

979

0

200

400

600

800

1000

1200

Fast and Furious 6 (2013) Fast and Furious 7 (2015)

NBOC (Rs mn)



380

1,510

-

200

400

600

800

1,000

1,200

1,400

1,600

Tanu weds Manu (2011) Tanu weds Manu returns(2015)

NBOC (Rs mn)



360

1,042

0

200

400

600

800

1000

1200

ABCD (2013) ABCD 2 (2015)

NBOC (Rs mn)


Media PVR


Exhibit 8: Footfalls grew 25% yoy in 1QFY16 and 16% yoy for comparable properties Trends in PVR's footfalls, March fiscal year-ends (mn)

7.5

9.1 9.1

11.5

15.1

16.6

14.3 13.915.2 15.7 16.0

12.2

19.0

0

4

8

12

16

20

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3Q

FY14

4Q

FY14

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

Notes: (1) Cinemax acquisition consolidated in 4QFY13.


Exhibit 9: ATP grew 4% yoy and 5% yoy on comparable properties in 1QFY16 Trends in PVR's average ticket price (ATP), March fiscal year-ends

160.1

167

174

164

168.6 169

175

160

176

180

184

168

183

(3)

0

3

6

9

12

15

140

150

160

170

180

190

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3Q

FY14

4Q

FY14

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

ATP (LHS, Rs) Growth (RHS, yoy %)



PVR Media


Exhibit 10: PVR reports a sharp 16% growth in SPH in 1QFY16 Trends in PVR's F&B spends per head (SPH), March fiscal year-ends

48.446

48 48

54 54 5456

64 64

67

62

74

0

5

10

15

20

25

30

40

45

50

55

60

65

70

75

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3Q

FY14

4Q

FY14

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

SPH (LHS, Rs) Growth (RHS, yoy %)



Exhibit 11: Ad revenues grew 27% yoy and 18% on comparable properties Trends in PVR's ad revenues, March fiscal year-ends

9 14

23

66

122

89 80

48

15 14

28

16

27

-

25

50

75

100

125

100

200

300

400

500

600

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3Q

FY14

4Q

FY14

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

Ad revenues (LHS, Rs mn) Growth (RHS, yoy %)



Media PVR


Exhibit 12: Condensed consolidated financials for PVR, March fiscal year-ends (` mn), 2012-2018E

2012 2013 2014 2015 2016E 2017E 2018E

Profit model

Revenues 5,177 8,064 13,475 14,813 18,750 23,247 27,377

EBITDA 761 1,169 2,117 2,050 3,406 4,091 4,872

Other income 123 91 113 46 75 100 125

Depreciation (365) (560) (944) (1,168) (1,363) (1,598) (1,803)

Interest expense (185) (368) (795) (783) (858) (862) (792)

Pretax profits 310 319 523 124 1,259 1,731 2,402

Tax (57) 124 (19) (8) (63) (138) (480)

PAT before minority interest 253 443 504 116 1,196 1,592 1,921

Minority interest 1 2 57 11 5 (5) (10)

PAT 254 445 561 128 1,201 1,587 1,911

Diluted EPS (Rs) 9.5 14.9 13.7 3.1 25.8 34.1 41.1

Balance sheet

Total equity 2,791 6,427 3,993 4,092 8,652 10,053 11,740

Deferred taxation liability 106 (10) 4 11 11 11 11

Total borrowings 2,035 6,566 6,134 7,475 8,875 8,375 7,875

Minority interest 139 854 771 383 378 383 393

Current liabilities 986 1,939 2,600 2,304 2,770 3,459 3,930

Total liabilities and equity 6,126 15,852 13,533 14,288 20,710 22,304 23,972

Cash and cash equivalents 211 732 495 261 523 786 1,056

Other current assets 2,038 3,229 3,763 4,605 5,240 6,019 6,902

Tangible fixed assets 2,621 5,710 6,990 7,076 8,556 9,059 9,519

Goodwill and Intangibles 374 4,712 1,466 1,525 5,570 5,620 5,675

CWIP 876 1,453 806 806 806 806 806

Total assets 6,126 15,852 13,533 14,289 20,710 22,305 23,972

Cash flow

Operating cash flow, excl. w-capital 679 1,429 2,003 2,021 3,343 3,952 4,391

Working capital changes (193) (239) 128 (1,138) (169) (90) (412)

Capital expenditure (1,160) (7,704) (1,273) (1,684) (6,887) (2,151) (2,318)

Other income (90) 37 80 44 75 100 125

Interest expense (net) (207) (430) (812) (783) (858) (862) (792)

Free cash flow (971) (6,907) 127 (1,540) (4,497) 949 994

Key ratios and assumptions

Footfalls (mn) 24.7 37.2 59.9 59.1 70.6 81.4 90.1

Average ticket price (ATP) (Rs) 156 163 168 178 187 200 210

Screens (#) 166 360 421 464 553 628 693

EBITDA margin (%) 14.7 14.5 15.7 13.8 18.2 17.6 17.8

Net debt/equity (X) 0.7 0.9 1.4 1.8 1.0 0.8 0.6

RoAE (%) 8.2 9.7 10.8 3.2 18.9 17.0 17.5

RoACE (%) 7.0 10.0 10.3 7.9 13.7 13.2 13.6

Notes:

(a) DT Cinemas acquisition built in estimates from 4QFY16E.



Cairn merger – majority approval from minorities difficult without support of major minorities

Unauthenticated media reports indicate that large minority shareholders of Cairn India including

(1) LIC (9.1% stake), and (2) Cairn Energy, UK (9.8% stake) may vote against a merger with

Vedanta. The merger requires an approval from a majority of minority shareholders of Cairn

India (minority stake is 40.1%) and a veto by these two shareholders (whose combined stake is

18.9%) could jeopardize the deal; media reports also indicate that another shareholder, United

India Insurance (small stake), does not approve of merger either. The common disagreement

appears to be Cairn’s valuation and expectations of a sweeter deal, though we note that Cairn

Energy prefers direct crude exposure through a continued holding in Cairn India instead of

getting exposure to diversified resources group, i.e. Vedanta.

Cairn merger critical for Vedanta to short out tight liquidity at parent(s) level

The merger with Cairn India is critical to Vedanta (and Vedanta Resources Plc) as it will

substantially improve tight liquidity at the parent entities given the large debt and limited cash

flows. Exhibit 3 compares net debt levels and EBITDA at Vedanta’s standalone balance sheet

(including wholly-owned subsidiaries) in a no-merger and merger scenario with Cairn. Net

debt/EBITDA for the parent (including wholly-owned subsidiaries) will improve on merger to

4.4X/3.4X for FY2016/17E from 11.7X/8.5X in a no-merger scenario.

Sweetened deal can be via preferential shares; merger failure may result in holdco discount

If Vedanta decides to sweeten the deal, it may only do so with a higher amount of preference

shares rather than an increase in the equity share swap ratio of 1:1 (Cairn: Vedanta). At the

proposed swap ratio, the promoter’s holding in Vedanta will fall to 50.1%, just enough for

Vedanta Resources Plc to maintain its premium listing in London. An additional increase of

`10/share in preference shares would increase the Cairn’s valuation by `7.5 bn (or ~1.5% of

market capitalization).

Vedanta’s strategic investment in Cairn was a part of its strategy to become a diversified major

natural resources major; the proposed merger has fueled Street expectations of a simplified

corporate structure in the new unified entity. The failure to merge Cairn will make difficult for

Vedanta to access the former’s cash flows unless through tax inefficient dividends and may

warrant a holding company discount.

Vedanta (VEDL) Metals & Mining

Cairn merger–minorities in majority? Unauthenticated media reports indicate that

two large minority shareholders of Cairn India may vote against the merger. The

concerns appear to hinge of valuation. If Vedanta does indeed sweeten the deal for

minority shareholders, every `10/share increase in Cairn valuation through preference

shares will impact Vedanta’s fair value by `2/share. The failure to merge Cairn with

Vedanta would make it difficult for the latter to access Cairn’s cash flows unless

through tax inefficient dividends and may warrant a holding company discount.

BUY

JULY 23, 2015

UPDATE


Price (`): 136


BSE-30: 28,505

Sesa Sterlite







MFs 1.4 EBITDA (Rs bn) 220.4 215.1 263.0


Absolute (22.9) (35.5) (54.2) ROE (%) 8.0 13.8 15.3

Rel. to BSE-30 (25.0) (36.9) (58.2) Div. Yield (%) 3.0 2.4 2.4


306-130

403.5

Metals & Mining Vedanta


We note that the Vedanta and Cairn India shareholder’s meetings to vote on the merger are

scheduled for 4QCY15.

Exhibit 1: Merger expected to be complete by 4QFY16 Various approvals required for the Cairn merger and their indicative timelines


Exhibit 2: LIC and Cairn Energy, UK are major minority shareholders Shareholding pattern of Cairn India, June 30, 2015 (%)

Source: BSE, Kotak Institutional Equities

Cairn merger with Vedanta would improve net debt status for the latter

(standalone)

Exhibit 3 compares pre-merger net debt levels and EBITDA at Vedanta’s standalone balance

sheet (including wholly-owned subsidiaries) with the same post its merger with Cairn. On

the Cairn merger, the debt position in the parent entity will improve materially. Vedanta had

net debt of `778 bn as of March 2015 in its standalone balance sheet (including wholly

owned subsidiaries) with cash reserves of `517 bn lay with HZ, Cairn India. On assuming

Cairn’s merger, net debt at standalone level (and wholly owned subsidiaries) will decline to

`597bn/`577 bn for FY2016/17E compared to `830 bn/`826 bn in a pre-merger scenario.

Net debt/EBITDA post-merger entity will improve to 4.4X/3.4X for FY2016/17E from

11.7X/8.5X in a pre-merger scenario.

Key events/approvals Indicative timeline

BSE, NSE and SEBI approvals 2QFY16

Vedanta Plc posting of UK Circular 2QFY16

Application to High Court in India 2QFY16

Vedanta Plc EGM 2QFY16

Vedanta Ltd and Cairn India shareholder meetings 3QFY16

Foreign Investment Promotion Board approval 3QFY16

High Court of India approval 4QFY16

Ministry of Petroleum & Natural Gas 4QFY16

Transaction completion 4QFY16

Twin Star Mauritius

Holdings, 34.4

Vedanta Limited, 23.7

Sesa Resources, 1.7

Cairn UK Holdings, 9.8

LIC India, 9.1

FIIs, 13.5

Others, 7.7

Vedanta Metals & Mining


Exhibit 3: Merger with Cairn can significantly improve Vedanta's high leverage at standalone level (including wholly owned subsidiaries) Scenario analysis of Cairn merger on Net debt, EBITDA and leverage ratios of Vedanta, March fiscal year-ends, (` mn)


Promoter’s stake in the merged entity to decline to 50.1% from 62.9%

At a 1:1X swap ratio (in favor of Cairn’s minorities), the promoter shareholding will fall to

50.1% from 62.9% at present (Exhibit 3). Note that Vedanta will issue 752 mn new shares

to minority shareholders of Cairn India, thereby taking total shares outstanding to 3,717 mn

from 2,965 mn shares. The minority shareholders of Cairn India will own 20.2% of Vedanta

Ltd, while 29.7% will be owned by minority shareholders of Vedanta Limited in the merged

entity.

2014 2015 2016E 2017E 2018E 2016E 2017E 2018E

Net debt (Rs mn)

Standalone, wholly owned subsidiaries

Sesa Sterlite Standalone* 670,480 710,920 752,133 747,692 730,082 752,133 747,692 730,082

Talwandi Sabo 50,060 63,890 78,025 74,564 65,986 78,025 74,564 65,986

Zinc International (12,040) (8 ,570) (18,210) (14,842) (7,136) (18,210) (14,842) (7,136)

Others 10,940 11,940 18,900 18,900 18,900 18,900 18,900 18,900

Cairn India (233,861) (248,942) (265,519)

Sub total 719,440 778,180 830,848 826,314 807,833 596,987 577,372 542,314

Other subsidiaries

Zinc India (239,430) (271,920) (347,551) (395,482) (447,111) (347,551) (395,482) (447,111)

Cairn India (230,170) (245,400) (233,861) (248,942) (265,519)

Balco 47,850 54,540 54,298 49,754 45,914 54,298 49,754 45,914

Sub total (421,750) (462,780) (527,114) (594,670) (666,716) (293,253) (345,728) (401,197)

Total 297,690 315,400 303,734 231,644 141,116 303,734 231,644 141,116

EBITDA (Rs mn)

Standalone, wholly owned subsidiaries

Sesa Sterlite Standalone* 23,119 46,295 54,408 76,437 77,973 54,408 76,437 77,973

Talwandi Sabo (469) 982 6,921 12,635 15,574 6,921 12,635 15,574

Zinc International 12,821 10,820 8 ,822 6,369 6,837 8 ,822 6,369 6,837

Others 7,564 (11,559) 609 1,240 1,200 609 1,240 1,200

Cairn India 63,903 75,210 77,203

Sub total 43,036 46,537 70,760 96,681 101,585 134,663 171,891 178,788

Other subsidiaries

Zinc India 69,615 74,196 71,443 79,868 82,681 71,443 79,868 82,681

Cairn India 140,840 96,207 63,903 75,210 77,203 - - -

Balco 3,160 3,506 8 ,947 11,275 10,599 8 ,947 11,275 10,599

Sub total 213,615 173,909 144,293 166,353 170,482 80,390 91,143 93,279

Total 256,650 220,446 215,052 263,033 272,067 215,052 263,033 272,067

Leverage ratios (X)

Standalone & wholly owned subsidiaries

Net debt/EBITDA (X) 16.7 16.7 11.7 8 .5 8 .0 4.4 3.4 3.0

Consolidated

Net debt/EBITDA (X) 1.2 1.4 1.4 0.9 0.5 1.4 0.9 0.5

Pre-merger Post-merger



Exhibit 4: Promoter shareholding at Vedanta will reduce to 50.1% from 62.9% on Cairn merger at

swap ratio of 1X Computation of revised promoter stake on merger with Cairn India, (%)


Merger can facilitate debt repayment to Vedanta Resources Plc

We note that the Vedanta Ltd.’s, parent entity, Vedanta Resources Plc had net debt of

US$7.7 bn as of March 2015 on its balance sheet while solely relying on the cash flows from

Indian subsidiaries for debt servicing as its Zambian copper operations struggle with low

profitability (Exhibit 4).

Vedanta Resources Plc has debt maturity of US$2.4 bn due in FY2016/17E. Vedanta

Resources Plc had earlier loaned US$2.7 bn to TSMHL (wholly-owned subsidiary of Vedanta

Ltd (India) and debt pertains to the Cairn India acquisition. We believe the merger can

facilitate loan repayment by TSMHL to Vedanta Resources Plc, thereby easing the high

leverage at the parent entity.

No. of shares

(mn)

Swap ratio (X) - (A) 1.0

Vedanta shares outstanding 2,965

Promoter's stake in Vedanta 62.9% 1,864

Cairn shares outstanding 1,875

Cairn India shareholding

Promoter stake (Vedanta) 59.9% 1,123

Minority stake (B) 40.1% 752

New Vedanta shares to be issued (A x B) - (C) 752

Vedanta - new shareholding

Existing shares 2,965

New shares to Cairn minorities 752

Total shares outstanding 3,717

Shares with promoters 1,864

Promoter stake (%) 50.1



Exhibit 5: High debt at parent Vedanta Resources Plc offers limited scope to reduce debt if not

through subsidiaries Net debt at the parent Vedanta Resources Plc and its various subsidiaries, March fiscal year-ends, (US$ mn)

Note: The debt numbers mentioned are only external. Hence the net debt at TSMHL does not include (a) US$2.7 bn payable to Vedanta Resources Plc, and (b) US$1.25 bn payable to Cairn India.


Exhibit 6: Vedanta Resources Plc has US$2.4 bn of debt maturing over next 2 years Debt maturity profile of Vedanta Plc and its subsidiaries, March fiscal year-ends, (US$ mn)


Mar-13 Sep-13 Mar-14 Sep-14 Mar-15

Net debt (US$ mn)

Vedanta Resources Plc 6,334 8,005 8,307 7,473 7,673

KCM 751 711 723 813 738

Vedanta (India) 4,748 4,518 4,585 4,889 4,439

Zinc International (197) (188) (169) (189) (137)

Zinc India (4,045) (3,886) (4,345) (4,478) (4,937)

Cairn India (3,102) (3,299) (3,912) (2,732) (2,857)

Balco 687 619 679 734 766

Talwandi Sabo 705 721 831 939 1,013

TSMHL 2,628 1,173 1,181 1,514 1,670

Others 103 97 53 100 90

Vedanta (India) Consolidated 1,526 (245) (1,097) 777 48

Total 8,616 8,463 7,920 9,055 8,460

2013 2014 2015

EBITDA (US$ mn)

Vedanta Resources Plc - 1 (1)

KCM 257 156 (4)

Vedanta (India) 577 510 795

Zinc International 1,203 214 181

Zinc India 295 1,173 1,220

Cairn India 2,440 2,347 1,477

Balco 62 53 60

Talwandi Sabo - (1) 22

TSMHL - - -

Others 54 26 (7)

Vedanta (India) Consolidated 4,631 4,334 3,745

Total 4,888 4,491 3,741

US$ mn Total 2016 2017 2018 2019 2020 Beyond 2020

Debt at Vedanta Plc 7.8 0.4 2.0 1.0 2.6 0.3 1.5

Debt at Subsidiaries 8.4 2.1 1.3 1.7 1.7 0.7 0.9

Total debt 16.2 2.5 3.3 2.7 4.3 1.0 2.4



Exhibit 7: Vedanta, Key assumptions, March fiscal year ends 2014-18E (` mn)


Exhibit 8: SOTP-based target price of Vedanta is `235/share SOTP-based target price of Vedanta, March fiscal year-ends, March 2017E basis (` mn)


2014 2015 2016E 2017E 2018E

Volumes (tons)

Zinc 750,766 736,000 774,223 782,403 783,034

Lead 121,120 127,143 134,080 163,483 167,760

Copper 297,000 361,658 367,984 374,059 384,184

Aluminum - Balco 252,172 300,135 500,225 559,075 559,075

Aluminum - Jharsuguda 542,000 534,000 846,500 1,487,500 1,550,000

Refined silver 347 328 365 417 397

Power (mn units) 7,530 8,419 14,310 16,742 19,161

Iron ore sales (dmt) 1,198 1,500 1,500 1,500

Cairn India net production (O+OEG) (000's b/d) 218 213 210 208 210

Average realization (Rs/ton)

Zinc 130,493 150,761 160,551 169,549 174,760

Lead 143,907 140,314 142,603 146,892 149,935

Copper cathode 442,810 416,584 396,744 402,992 406,116

Aluminium ingots 134,733 149,158 146,494 152,344 153,524

Silver (Rs mn/ton) 43 36 36 37 38

Power (Rs/unit) 3.3 3.1 3.8 4.0 4.1

Base assumptions (US$/ton)

Zinc 1,909 2,176 2,250 2,350 2,400

Lead 2,092 2,021 1,950 2,000 2,050

Copper 7,108 6,558 6,000 6,000 6,000

Aluminium (all in) 2,030 2,290 2,100 2,150 2,150

Dated Brent crude price (US$/bbl) 108 86 65 73 80

EBITDA Multiple EV Net debt

Implied

M Cap

Sesa's

stake

Attributable

M Cap Contribution

(Rs bn) (X) (Rs bn) (Rs bn) (Rs bn) (%) (Rs bn) Rs/ share

BALCO 11 6 71 50 21 51 11 3

Zinc business

Hindustan Zinc 80 6 503 (433) 936 64.9 608 163

Zinc International 6 5 29 (15) 44 100 44 12

Cairn India (fair value of KIE's energy team) 114

Debt from Cairn India acquisition 331 (89)

Standalone (ex-power, iron ore) 67 6 420 358 62 100 62 17

Iron ore business 4

Power business 10

Sesa Sterlite share price (Rs/ share) 235

Target price of Sesa Sterlite (Rs/ share) 235



Exhibit 9: Vedanta Ltd, Proforma (Cairn merger) Profit model, balance sheet and cash flow model, March fiscal year-ends, 2014-2018E (`

mn)


2014 2015 2016E 2017E 2018E

Profit model (Rs mn)

Net sales 722,341 737,095 822,718 975,261 1,020,566

EBITDA 256,650 220,446 215,052 263,033 272,067

Other income 24,460 29,772 36,863 43,325 47,904

Interest (61,110) (56,588) (62,426) (66,599) (62,224)

Depreciaiton (55,840) (51,096) (54,910) (61,841) (61,393)

Goodwill amortization (28,400) (20,496) - - -

Profit before tax 135,760 122,039 134,579 177,918 196,353

Extraordinaries (2,290) (221,289) - - -

Current tax (10,000) (27,736) (20,945) (35,591) (36,551)

Deferred tax - 13,253 (3,075) (2,155) (5,960)

Net income before minorities 123,470 (113,734) 110,560 140,172 153,843

Minority interest (73,420) (42,764) (27,023) (29,992) (30,729)

Net income 50,050 (156,498) 83,537 110,181 123,113

Adjusted net income 50,200 50,601 83,537 110,181 123,113

EPS adjusted (Rs) 16.9 17.1 22.5 29.6 33.1

EPS (ex-goodwill amortization) (Rs) 26.5 24.0 22.5 29.6 33.1


Shareholder's funds 730,087 538,753 675,110 769,055 873,763

Borrowings 805,660 777,523 802,898 782,447 746,996

Minority Interest 337,975 355,297 122,267 137,955 153,653

Deferred tax liability 27,352 33,297 36,371 38,526 44,486

Current liabilities 240,110 197,942 190,701 213,490 217,907

Total liabilities 2,141,183 1,902,812 1,827,349 1,941,473 2,036,804

Net fixed assets 479,671 523,181 752,497 852,691 868,896

Capital work-in-progress 431,277 387,480 181,033 98,622 101,122

Goodwill 392,383 177,897 0 0 0

Cash and cash equivalents 507,970 462,126 499,164 550,803 605,880

Current assets 329,882 352,128 394,653 439,356 460,906

Total assets 2,141,183 1,902,812 1,827,348 1,941,473 2,036,804

Free cash flow (Rs mn)

Operating cash flow excl. working capital 119,495 140,498 131,681 160,843 173,292

Working capital changes (10,239) (25,345) (49,766) (21,914) (17,132)

Capital expenditure (72,317) (105,742) (77,779) (79,623) (80,098)

Free cash flow 36,939 9,411 4,135 59,305 76,061

Ratios

Debt/equity (X) 1.1 1.4 1.2 1.0 0.9

Net debt/equity (X) 0.4 0.6 0.4 0.3 0.2

RoE (%) 7.2 8.0 13.8 15.3 15.0

RoACE (%) 9.0 10.7 8.3 9.8 9.9


Understanding the source and destination of container traffic important to gauge the shift

In Exhibit 1/2, we highlight 11 major industrial clusters in India which constitute around 85% of

the cargo traded by India globally (around 60% is concentrated in North and West based

states). The source and destination of container traffic is getting concentrated either closer to

the ports (industrial clusters in Gujarat and Maharashtra, where DFC will have limited impact) or

close to the hinterlands (NCR, Punjab, Haryana, etc., where DFC will have a positive impact).

The shorter lead distances to and from inland destinations may not necessitate rail

transportation. Also in certain longer lead distance, lower volumes or the lack of two-way traffic

inhibits introducing container train services, in the present pricing scheme.

Feedback from industry participants suggests that around 65-70% of traffic is already being

handled by rail from western based ports, to key hinterland markets in the National Capital

Region (NCR). At present, of the ~2.7 mn TEUs of EXIM trade carried by Indian rail, around 0.9

mn TEUs is captured by north based ICDs (Appendix I). These points indicate that the benefit for

a container rail operator, post commissioning of DFC, will be gradual (though yearly growth

rates should improve meaningfully) vs. a sharp spurt that is widely expected.

Higher growth in major north-based cargo centres only post commissioning of DFC and DMIC

Any major shift or higher growth in trade at the existing major cargo centres can only happen

post commissioning of the DFC and supplemented by the DMIC project. We note that in

anticipation of DFC/DMIC commissioning and medium-term demand increase, a large amount

of capacity addition (eventual capacity) has already materialized or work is already under

progress in north India (Exhibit 4). Our analysis indicates an overall quantum (eventual capacity)

of ~5.3 mn TEUs of which about 20% is utilized presently. These ICDs are strategically located

to cover growing industrial hubs in NCR (Gurgaon, Manesar, Faridabad, Ghaziabad, Bhiwadi,

Rewari, Dharuhera, Neemrana, Hisar, Panipat, Sonepat). With better rail connectivity, post DFC

commissioning, these industrial hubs are likely to blossom providing good long-term growth

opportunities for container train operators. Benefits from DFC for a rail operator would flow

through higher efficiency/productivity gains (higher double-stacking, lesser investment in

wagons, faster turnaround- 360 containers per train in around 24 hours from JNPT to NCR vs.

90 containers in around 40-50 hours, at present).

No major improvement in cost economics for road operator vs. improving rail economics

Implementation of GST will benefit both rail/road operators in terms of time and cost related

savings. For rail cum ICD operators the hub and spoke model will gain more prominence on the

implementation of GST/DFC. For road operators, implementation of electronic toll collection will

reduce operating costs while gradual reduction in overloading on stricter monitoring and

implementation will be a negative. Overall, in the emerging scenario, it is difficult to envisage

improvement in cost economics of road operators vs. improving economics for rail operators.

Infrastructure India

Rail operators—moving into sweet spot. Our recent visit to three ICDs in the

National Capital Region (NCR), concurrent discussion with industry participants and

analysis embeds the view of superior long-term volume growth economics for container

rail operators. While commissioning of the DFC project will be an important variable in

the journey of shift (higher share) from road to rail, other variables (source and

destination of container based on industrial cluster, GST, truck operators emerging

economics) too need to be kept in mind while envisioning the shift. Concor and

Gateway Distriparks are well placed to capture the opportunity.

ATTRACTIVE

JULY 23, 2015

UPDATE

BSE-30: 28,505



Commissioning of DFC may be an important variable towards higher container

rail share, though other variables too need to be kept in mind:

Our recent visit to three ICDs in the National Capital Region (NCR), concurrent discussion

with industry participants and subsequent analysis embeds the view of superior long-term

volume growth economics for container rail operators. While commissioning of the

Dedicated Freight Corridor (DFC) project will be an important variable in the journey of shift

(higher share) from road to rail, other variables (important to gauge the shift) too needs to

be kept in mind while envisioning the shift (overall shift difficult to quantify).

Key monitorables to gauge the extent of shift are (1) Source and destination of container

traffic based on existing industrial clusters, (2) Shift or higher growth in major cargo centres

(especially north) post commissioning of DFC and DMIC, (3) DFC led efficiency/productivity

improvement and higher containerization, (4) GST led positives for both road and rail

operators, (4) changing economics of road operators with respect to gradual reduction in

overloading (improving monitoring and implementation), implementation of electronic toll

collection, movement in fuel prices, etc. We elucidate on each of the points below:

Source and destination of container traffic: In Exhibit 1 and 2, we highlight eleven

major industrial clusters in India which constitute around 85% of the cargo traded by

India globally (around 60% is concentrated in North and West based states). As can be

seen below, the source and destination of container traffic is getting concentrated either

closer to the ports (industrial clusters in Gujarat and Maharashtra, where DFC will have

limited impact) or close to the hinterlands (NCR, Punjab, Haryana, etc., where DFC will

have a positive impact). The shorter lead distances to and from inland destinations may

not necessitate rail transportation. Also in certain longer lead distances, lower volumes or

the lack of two-way traffic inhibits introducing container train services, in the present

pricing scheme.

Feedback from industry participants suggests that around 65-70% of traffic is already

getting handled by rail, from western based ports, to key hinterland markets in the

National Capital Region (NCR). At present, of the ~2.7 mn TEUs of EXIM trade carried by

Indian rail, around 0.9 mn TEUs is captured by north based ICDs (Appendix I). These

points indicate that the benefit for a container rail operator, post commissioning of DFC,

will be gradual (though yearly growth rates should improve meaningfully) vs. a sharp

spurt that is widely expected.

http://ncrpb.nic.in/ncrconstituent.php

India Infrastructure


Exhibit 1: Key export cluster in India (share, %)

Source: Drewry, Kotak Institutional Equities

Exhibit 2: Key Import cluster in India (share, %)

Source: Drewry, Kotak Institutional Equities

Shift or higher growth in major cargo centres (especially north) only post

commissioning of DFC and DMIC: Any major shift or higher growth in trade at the

existing major cargo centres can only happen post commissioning of the DFC and

supplemented by the Delhi-Mumbai Industrial Corridor (DMIC) project.

We note that in anticipation of DFC/DMIC commissioning and medium-term demand

increase, a large amount of capacity addition (eventual capacity) has already materialized

or work is already under progress, driven by (1) Kathuwas (300 acres, eventual capacity of

1.5 mn TEUs) and supported by (2) JM Baxi’s Delhi International Cargo Terminal (DICT)

(65 acres, 0.25 mn capacity) and GDPL’s Faridabad (70 acres, 0.35 mn eventual capacity).

Our analysis indicates an overall quantum (eventual capacity) of ~5.3 mn TEUs (Exhibit 4)

of which about 20% is utilized presently.

The aforesaid ICDs are strategically located to cover growing industrial hubs in NCR

(Gurgaon, Manesar, Faridabad, Ghaziabad, Bhiwadi, Rewari, Dharuhera, Neemrana,

Hisar, Panipat, Sonepat). With better rail connectivity, post DFC commissioning, these

industrial hubs are going to blossom providing good long-term growth opportunities for

container train operators.

12

14

3

13

9

3

16

3

3

3

4

12

18

3

15

8

2

20

2

3

3

6



Exhibit 3: Key ICDs in the NCR market

Exhibit 4: The northern hinterland ICDs eventual

capacities at ~5.3 mn TEUs

Eventual

capacity Area

ICD Owner (mn TEUs) (acres)

Tughlakabad Concor 0.40 109

Kathuwas Concor 1.50 300

Dadri (Concor + JVs) Concor 0.50 271

Rewari Concor 0.10 20

Barhi Concor 0.50 117

Sonepat+Surnasi Concor 0.18 NA

Gaurhi Harsaru GRFL 0.50 90

Piyala, Faridabad GRFL 0.35 70

Modinagar Kribhco Infra 0.50 100

DICT JM Baxi 0.25 65

Patli Adani 0.20 73

Loni WWIL 0.17 28

ACTL ACTL 0.16 24

Total 5.31 #####

Notes:

(a) Barhi acreage is based on 37 acres given from

Harayana State and Concor buying additional 80 acres of

land

(b) Sonepat and Surnasi ICD capacity is based on initial

capacity (eventual capacity may be higher)

(c) Modinagar ICD capacity estimated based on a ratio of

0.5 mn TEU per 100 acre of area

Source: GRFL, Kotak Institutional Equities

Notes:

(a) Numbers in brackets indicate annual handling capacity in TEUs

Map not to scale

Source:GRFL, Kotak Institutional Equities

Exhibit 5: Key demand centers in NCR


Exhibit 6: Distance between key demand centers from key

northern ICDs


Delhi

Shahdara

Key locations

Concor ICDs

GRFL ICDs

Other ICDs

Loni (WW)10 Km

44 Km

Chandigarh(NH 1)

Ghaziabad

Dadri (0.12)

17 Km

Bulandshahr(NH 91)

TKD (0.4 mn)

Ballabgarh

ACTL

25 Km

Piyala, Faridabad(0.15 mn)

Agra(NH 2)

53 Km

8 Km

GarhiGurgaon (0.5 mn)

Hisar(NH 10)

Patli (Adani)

8 Km

Rewari

40 Km

Alwar

Jaipur(NH 8)

Dehradun(NH 24)

37 Km

Kathuwas (1.5 mn)

DICT (0.5 mn)

Neemrana

178 Km

20 Km

18 Km

18 Km

22 Km

5 Km

175 Km

84 Km 175 Km37 Km

Pali10 Km

Modinagar (~0.5 mn)

25 Km

GatewayRail ICD Gurgaon

ICD Tughlakabad

Manesar

Bhiwadi

Bawal

Rewari

Sonepat

Panipat

Karnal

Bhiwani

Jaipur

Kathuwas

DICT

Neemrana

Location

Distance from

ICD Gurgaon

Distance

from TKD

Distance from

Kathuwas

Distance

from DICT

Manesar 9 Km 33 Km 73 Km 80 Km

Bhiwadi 45 Km 67 Km 54 Km 105 Km

Rewari 49 Km 87 Km 31 Km 120 Km

Neemrana 92 Km 116 Km 29 Km 160 Km

Bawal 67 Km 97 Km 39 Km 150 Km

Bhiwani 117 Km 141 Km 93 Km 120 Km

Hisar 165 Km 189 Km 154 Km 165 Km

Jaipur 233 Km 263 Km 178 Km 310 KmICD Tughlakabad



In the long-term we will see emergence of new industrial corridors as initial work has

already begun on the Delhi-Mumbai Industrial corridor (DMIC). The DMIC project aims to

develop industrial zones spanning six north-western states in India over a period of 30

years. The project influence includes parts of Uttar Pradesh, Haryana, Rajasthan, Gujarat,

Maharashtra and Madhya Pradesh. A band of 150 km to 200km has been chosen on

both the sides of the western DFC to be developed as the DMIC. In addition to the

influence region, DMIC will also include development of requisite feeder rail and road

connectivity to the hinterland and markets and select ports along the western coast. At

present work on two industrial nodes, Dholera in Gujarat and Shendra in Maharashtra

has started and the Phase-I will be completed by FY2020. We note that three of the

seven nodes being developed in the Phase-I (to be completed by FY2020) are in

the NCR belt (Exhibit 8).

Exhibit 7: DMIC- Seven nodes being developed in Phase-I

Source: DMIC, Kotak Institutional Equities

Exhibit 8: Three of the seven nodes being developed in Phase-I are in the NCR belt

Source: DMIC, Kotak Institutional Equities

Regions State

Nodal

Agency Master planner

Total Area

(sq km)

Development

Area (sq km)

Planned

population

(mn)

Planned

employment

(mn)

Ahmedabad-Dholera Gujarat GIDB Halcrow, UK 903 540 2.00 0.80

Dadri-Noida-Ghaziabad Uttar Pradesh UPSIDC Halcrow, UK 210 100 1.50 1.20

Manesar-Bawal Haryana HSIIDC Jurong, Singapore 800 402 3.88 1.17

Khushkhera-Bhiwadi-Neemrana Rajasthan RIICO Kuiper Campagnons, Netherlands 165 101 1.28 0.55

Pitampura-Dhar-Mhow Madhya Pradesh TRIPAC LEA Associates, Canada 372 100 1.20 0.17

Shendra Bidkin Mega Industrial Park Maharashtra MIDC AECOM Asia 84 32 0.56 0.40

Dighi Port Industrial Area Maharashtra MIDC AECOM Asia 253 55 1.90 1.10



DFC led efficiency/productivity improvement and higher containerization: Benefits

from DFC for a rail operator would flow through higher efficiency/productivity gains

(higher double-stacking, lesser investment in wagons, faster turnaround- 360 containers

per train in around 24 hours from JNPT to NCR vs. 90 containers in around 40-50 hours,

at present). Higher double stacking would also help capture light-weight cargo from road

on better price competitiveness. Freeing up of capacity by DFC, coupled with increase in

port-handling capacity and ICD handling capacity would also support higher

containerization (present at around 52% vs. around 75% for developing economies).

The pricing of DFC network to be charged by Indian Railways (IR) to rail operators has not

been revealed, so far. Based on past experience, pricing can be initially stiff leaving lower

benefits for rail operators and multiple iterations are likely by IR before an ideal price mix

is found that balances the overall objectives of IR and rail operators.

Exhibit 9: Salient features of DFC project

Source: DFCC, Kotak Institutional Equities

Improvement in Exim imbalance. Increased instance of imbalance leads to de-stuffing

of excess imports at the container freight stations (CFS). Double-stacking has to some

extent reduced the impact of exim imbalance on rail operators. Still continued weakness

in exports versus imports would lead to fluid movement of traffic between road and rail.

GST would improve offering of both roads and railways. Implementation of Goods

& Services tax (GST) will remove multiple points of taxation and help improve the overall

logistics chain of the country.

For rail operators, domestic transportation is a big opportunity once DFC (capacity added,

double stacking takes out imbalance) and GST (bundling of throughput, warehousing

facilities) resolves the problem of return traffic for the domestic leg (north-east traffic).

Also once GST becomes a reality, the hub and spoke model would become the

mainstream mode of warehousing. As for trailer operators, implementation of GST would

also benefit in terms of time and related-cost savings. Transport Corporation of India

Limited (TCIL) estimates that 40% of the time lost by trailer operators is due to stoppages

at state border check-posts.



Road operators- cost savings possible once electronic tolling becomes mainstream.

To expedite the toll collection process, India should gradually move towards electronic toll

collection (ETC). Implementation of ETC will not only reduce congestions and long queues

at toll plazas, but also reduce operating costs for toll operators and plug revenue leakage.

Presently most toll plazas are operated on a manual basis. Related stoppages add almost

5% to the time of an average trip (based on TIL study for Delhi-Mumbai route). This time

delay has two cost components: (1) time and (2) fuel. From a time perspective, the cost

impact is a 2% addition to trip expenses. The second cost element is related to the

additional fuel consumption at such check-posts. While it is difficult to quantify this

impact, a sensitivity of mileage to trip expenses suggests the potential of improvement in

the range of 5-10% on this count.

Exhibit 10: Time-related cost delays of~2% Trip expenses and contribution margins including the costs of delay

Source: TCIL, , Kotak Institutional Equities

Exhibit 11: 5-10% reduction in trip expenses is possible on lower

idling time Improvement in trip expenses with increase in mileage

Source: TCIL, , Kotak Institutional Equities

Road operators- Reduction in instances of overloading to be a negative. NHAI has

been focusing on reducing overloading in the backdrop of increasing number of road

accidents and fatalities on national highways. It asked select key toll plazas to install

weighing machines in March 2012 and in October 2013, enforced strict penalties for

overweight vehicles (10X of base fare +unloading of excess cargo). Our analysis of select

road assets suggest that road operators have started levying such penalties against

oversized vehicles, though their collections do not reflect the large share of such over-

sized vehicles getting penalized. There is also a proposal to invoke the “Prevention of

Damage to Public Property Act, 1984” to seize the vehicle and arrest the driver of

oversized vehicles. The above steps taken suggest seriousness of the Indian government

to reduce overloading. As this happens, the competitiveness of truck drivers would

reduce, relative to rail operators. This should help railways gain market share from road

operators for long-distance container transport.

Parameter Unit Average

Cost of delay Rs / hour 122.79

Trip expenses Rs / tonne-Km 1.11

Increase in trip expenses % 1.82

Mileage (kmpl)

Average trip

expenses

4.15 1.09

4.30 1.07

5.00 0.98

5.50 0.92



Exhibit 12: Estimated road traffic death rate per 100,000

population

Source: WHO report - 2013, Kotak Institutional Equities

Exhibit 13: Large share of national highways Number of Accidents, Persons Killed & Injured as per Road Classification, 2011

Source: MoRTH, Kotak Institutional Equities

Road operators more levered to fuel cost changes. As per TCIL, fuel accounts for

about 47% of the cost of operating a trailer (including overhead). Costing (and thus

pricing) for roads thus may remain fluid on the basis of changes in fuel price. This can

impede/support shift of traffic to rail from roads. No major growth witnessed in Road

Freight Index (weighted average freight rates compiled across various routes) over the

past several years despite increasing diesel price trend indicates low demand and lack of

pricing power for the industry. Accordingly, rail operator increasingly becoming more cost

competitive isn’t great news for road operators.

Exhibit 14: Fuel accounts for half of the total cost Break-up of cost of operation of trailers

Source: TCIL, Kotak Institutional Equities

31.9

22.520.5

18.9 18.6 17.7

11.4

6.45.2 4.7 3.7

0

5

10

15

20

25

30

35

Sou

th A

fric

a

Bra

zil

Chin

a

Ind

ia

Ru

ssia

Ind

on

esia US

France

Jap

an

Ger

many

UK

Road classification

National

Highways

State

Highways Other Roads

No. of accidents 149,732 122,239 225,715

Share in total accidents (%) 30.1 24.6 45.3

No. of persons killed 52,924 39,033 50,528

Share in total no. of persons killed (%) 37.1 27.4 35.5

No. of persons injured 156,008 133,435 221,951

Share in total no. of persons injured (%) 30.5 26.1 43.4

Fuel

47

Time-specific

overheads16

Distance-specific

overheads14

Others

23



Exhibit 15: The Indian Road Freight Index reveals subdued growth over the last several years

Notes:

(a) Diesel price is the average retail price of diesel across 4 metro cities in India – Delhi, Mumbai, Kolkata and

Chennai

Source: TCIL, Kotak Institutional Equities

Gateway Rail: Improving EXIM offering when it matters; has sufficient capacity

to reap benefits

As a part of our Delhi visit, we interacted with the management of Gateway Rail on business

prospects and followed it up with a visit to their Garhi Harsaru ICD terminal. The

management was confident of capturing overall business growth opportunities as well as

any potential shift of traffic (from Tughlakabad, especially for the traffic not

consumed/originating from NCR) based on (1) it having sufficient capacities, (2) superior

customer relationship and technological offerings and (3) improving double-stacking

offering (once Virangam becomes operational).

Shift of traffic in NCR to happen: Concor’s Tughlakabad ICD volume may gradually

reduce NGT pressure; especially for the traffic not consumed/originating from NCR. Also

increase in relevance of Concor’s Kathuwas as an ICD terminal would be a function of

ramp-up in local demand and establishment of an ecosystem. Both may take time. GDPL

may thus benefit from growth in NCR region (Garhi Harsaru has 10% market share and

has capacity to grow volumes 4X).

….at a time when GDPL is improving its double-stacking offering. The offering of

GDPL for double-stacking would improve for traffic from Garhi Harsaru to western ports

(Mundra/Pipavav/JNPT) once Virangam terminal (near Ahmedabad) gets set up. The

terminal with railway siding and container yard will be constructed over 35 acres of land

acquired and is expected to be operational within a year. Then GDPL can avail the

benefits of double-stacking for all key port traffic over a distance of 850 km. Concor’s

Swaroopgunj (linked to Kathuwas) would provide the same flexibility minus the benefits

of hub-and-spoke pricing (distance between Swaroopgunj and Kathuwas at less than 750

km does not satisfy minimum distance between hubs required for hub-and-spoke

pricing). Still benefits of double-stacking (50% of haulage cost for second stack) would

help improve Concor’s offering.

107 110 114 123 127

140

165 167 171 172 174 175 176 179 182 17 18 21

23

28

33 34 34 35 36 40

43 47

55 59

-

10

20

30

40

50

60

70

50

100

150

200

250

300

350

400

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Indian road freight index (IRFI) (LHS) Diesel price (Rs/litre) (RHS)

Takeaways from

Gateway Rail

management

meeting

http://indianexpress.com/article/india/india-others/why-tughlakabad-depot-is-toxic-heart-of-south-delhi/



Exhibit 16: Gurgaon-Ahmedabad-JNPT route (Concor)

Source: Indian railways, Kotak Institutional Equities estimates

Exhibit 17: Kathuwas-Swaroopganj-JNPT route (GDPL)


GDPL can multiply volumes 4X from current levels to 1.2 mn TEUs. (1) Garhi

Harsaru, Gurgaon- it has 90 acres of land, capable of supporting 500,000 TEUs

capacities. Present capacity is 250,000 TEUs and throughput is 125,000 TEUs. (2)

Sahnewal, Ludhiana- it has 60 acres of land at Sahnewal, capable of supporting 350,000

TEU capacities. Present capacity is 200,000 TEUs and throughput is 125,000 TEUs. (3)

Faridabad- It has 70 acres of land at Faridabad, capable of supporting 350,000 TEU

capacities. Present capacity is 150,000 TEUs and throughput is negligible.

Exhibit 18: GRFL can do 4X current throughput Key statistics for GRPL (TEU)


Increasing instance of double-stacking. While double stacking is happening at

present, its incidence would increase once the loading permissible on wagons and track

gets increased. Eventually all container traffic would start getting double-stacked against

the present case of 30-40% share of double-stacking. The key to increasing amount of

double-stacking is to increase wagon load to 68 tons and eventually to 75 tons (once DFC

starts) from 61.2 tons at present. At 61.2 tonne wagon load threshold, light-weight FEUs

are essential to a double-stack combination. On the DFC track and with new rail

infrastructure, more such combinations would be possible, increasing the share of

For 26-30 tonne category

Section Length (Km) Electrification status Typical freight rate per TEU (Rs)

Gurgaon-Ahmedabad 913 In progress 21,426

Ahmedabad-JNPT 555 Electrified 13,772

Total 1,468 35,198

Single Journey cost 1,468 33,453

Savings (%) through single journey 5.0

For 26-30 tonne category

Section Length (Km) Electrification status Typical freight rate per TEU (Rs)

Kathuwas-Swaroopganj 620 In Progress 14,865

SwaroopGanj-JNPT 780 In Progress 18,145

Total 1,400 33,010

Single Journey cost 1,400 na

Savings (%) through single journey —

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GDPL ICD/Rail throughput 10,200 17,078 36,666 66,521 112,444 131,337 180,473 233,566 212,317 250,347

ICD Current capacity (TEUs)

ICD Gurgaon - Garhi Harsaru 260,000

ICD Ludhiana - Sahnewal 300,000

ICD Faridabad 150,000

Total 710,000

Current throughput 250,347

Throughput (%) 35.3



double-stacking. GDPL believes that this can double the amount of cost savings for the

company to 20%.

Profiling of the NCR market. This market is around 100,000 TEUs per month

throughput with a large proportion coming from Concor (50-60% combined share from

Tughlakabad and Dadri), followed by GDPL (10% share), Loni (10% share) and

ACTL+Patli (7-8% combined). GDPL is better placed versus competition given its

technology oriented and customer specific solutions.

Exhibit 19: Key ICDs in and around NCR market


Gurgoan ICD: Large capacity; limited scale helps improve offering

Location and markets served. The terminal is located in Gurgaon district of Haryana,

near the Garhi Harsaru railway station. It is spread over 90 acres of land and can presently

handle around 250,000 TEUs of container per annum. It is strategically located to cover

the industrial hubs in NCR (Gurgaon, Manesar, Faridabad, Ghaziabad, Bhiwadi, Rewari,

Dharuhera, Neemrana, Hisar, Panipat, Sonepat).

0.5million in first phase

Total 1 million at Dadri

http://www.thehindubusinessline.com/2004/07/17/stories/2004071701460900.htm

http://www.cclog-park.com/why_dadri.html

Delhi

Shahdara

Key locations

Concor ICDs

GRFL ICDs

Other ICDs

Loni (WW)10 Km

44 Km

Chandigarh(NH 1)

Ghaziabad

Dadri (0.12)

17 Km

Bulandshahr(NH 91)

TKD (0.4 mn)

Ballabgarh

ACTL

25 Km

Piyala, Faridabad(0.15 mn)

Agra(NH 2)

53 Km

8 Km

GarhiGurgaon (0.5 mn)

Hisar(NH 10)

Patli (Adani)

8 Km

Rewari

40 Km

Alwar

Jaipur(NH 8)

Dehradun(NH 24)

37 Km

Kathuwas (1.5 mn)

DICT (0.5 mn)

Neemrana

178 Km

20 Km

18 Km

18 Km

22 Km

5 Km

175 Km

84 Km 175 Km37 Km

Pali10 Km

Modinagar (~0.5 mn)

25 Km

Takeaways from site

visit to Garhi Harsaru

ICD



Exhibit 20: Key demand centers in NCR


Exhibit 21: Distance between key demand centers from key

northern ICDs


Throughput. The terminal handles around 125,000 TEUs of traffic on an annual basis as

compared to a capacity of 250,000 TEUs. Eventual capacity is higher at about 500,000

TEUs

Railway services. The terminal runs 3-4 rains per week to JNPT, 4-5 trains each to

Mundra and Pipavav and regular reefer services to Kalamboli, Navi Mumbai. The terminal

runs double-stack services to Mundra and Pipavav and single-stack services to JNPT.

Road connectivity. The ICD is about 9 kms away from the key NH-8 highway and thus is

well connected to key industrial hubs.

Infrastructure. The ICD has four full length rail lines and one sick line (for repair of

affected rail). All its trailers are fitted with GPS. The RFID trackers help customer access

the exact location of containers. All containers within the ICD premises get tracked on a

regular basis (through night-vision binoculars in the night). It has 150,000 sq meters of

container yards and 15,000 square meters of bonded warehouse.

Container contents. Exports consist of automobile parts, specialty chemicals, steel coils,

frozen meat, fisheries, grapes, copper strips. Imports are shredded scraps, steel coils, auto

parts, white goods, ply board, etc.

Kathuwas to support shift of traffic from TKD; can eventually become a logistics

hub

As part of our Delhi visit, we also visited Concor’s ICD terminals: (1) Kathuwas and (2)

Tughlakabad. Tughlakabad has for long been the bastion of Concor in the northern

hinterland. It is unique in terms of (1) scale, (2) location for capturing the NCR market and

(3) a well-established eco-system. As claims of pollution caused by diesel trailers and limited

land capacity limit further growth at the terminal, Concor has started operationalizing

alternate ICD capacities (Kathuwas, Sonepat, Surnasi). Key among these is Kathuwas, 3X the

acreage of Tughlakabad and situated on the DFC. While the ICD would come up in phases,

the current capacity at Kathuwas would support shift of traffic from Tughlakabad and thus

add to Concor’s ICD capacity in the northern hinterland. Over the next six months,

GatewayRail ICD Gurgaon

ICD Tughlakabad

Manesar

Bhiwadi

Bawal

Rewari

Sonepat

Panipat

Karnal

Bhiwani

Jaipur

Kathuwas

DICT

Neemrana

Location

Distance from

ICD Gurgaon

Distance

from TKD

Distance from

Kathuwas

Distance

from DICT

Manesar 9 Km 33 Km 73 Km 80 Km

Bhiwadi 45 Km 67 Km 54 Km 105 Km

Rewari 49 Km 87 Km 31 Km 120 Km

Neemrana 92 Km 116 Km 29 Km 160 Km

Bawal 67 Km 97 Km 39 Km 150 Km

Bhiwani 117 Km 141 Km 93 Km 120 Km

Hisar 165 Km 189 Km 154 Km 165 Km

Jaipur 233 Km 263 Km 178 Km 310 KmICD Tughlakabad

Concor investing for

the longer term



Kathuwas would also start supporting new traffic from nearby industrial belts. Eventually,

Kathuwas has the potential to become hub for industrial activity in key sectors.

Tughlakabad ICD: Unique in scale; limited growth potential

Location and market served. ICD Tughlakabad (TKD), flagship terminal of Concor, is

situated near Okhla Industrial Area (southeast of Delhi) and is spread over 109 acres of

land. Its hinterland comprises of all states of Northern and Western India. It has a well-

developed ecosystem housing offices of customs, bank, shipping Lines, CHAs and

surveyors.

Throughput. Tughlakabad’s average throughput is around 38,500 TEUs per month, and

the ICD is operating at its peak volumes. There are four rail lines and on an average 15

trains are handled daily.

Exhibit 22: Static volumes at the Tughlakabad port Container volumes at key terminals (TEUs)


Railway services. The ICD handles rail containers through daily train services to the

Gateway ports (Mumbai, Nhava Sheva, Pipavav, Mundra, Chennai). The ICD also caters to

containers brought by roads from other ports such as Haldia, Calcutta and Kandla, etc.

Road connectivity. The ICD touches NH-2 and is conveniently located, having approach

to major roads in Delhi connecting all National Highways leading out of the state.

Infrastructure. The ICD has four full length rail lines in the customs area. It is equipped

with modern facilities such as rail mounted gantry of 40 metric ton empty lifting capacity,

rubber tyre diesel powered cranes, billoties and lift trucks. It has two covered sheds, one

for import (6,000 square meters) and another for export (10,000 square meters) with a

total area of 16,000 sq. mts. In addition, there are two bonded warehouses spread over

8,500 square metres.

406 410 409 384

413 428 440 447 438

463

-

100

200

300

400

500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Concor-Tughlakabad('000 TEUs)

Takeaways from the

Tughlakabad visit and

meeting



Exhibit 23: Terminal profile of Inland Container Depot, Tughlakabad, New Delhi


Container contents. On the export side, major items include leather garments and

leather products, readymade garments, machinery and agricultural products etc.

Commodities being imported include chemicals, accessories of motors, plastics and

articles, copper rods, copper wire etc.

Static throughput constrained by rail capacity. Tughlakabad’s average throughput is

38,500 TEUs per month, and ICD is operating at over 100% land capacity. It is trying to

free some more land. Rail capacity remains a bottle-neck and that would get relieved

once DFC comes about (as transportation time would reduce).

Some potential for increase in Concor’s northern throughput. Once Kathuwas

becomes operational, 30% of non-NCR traffic would shift there and thus lead to growth

in Concor’s northern throughput. Concor would also be able to shift some of its traffic to

other upcoming ICDs (Sonepat and Surnasi).

Limited rail share at ports may not be the case for hinterland locations. We note a

25:75 mix of rail:road freight at ports. Within ports, this mix is even more in favor of

roads at JNPT and slightly more balanced at Mundra and Pipavav. This is reflected in

Concor having a market share (rail+road) of 15% and 45% at Pipavav. The share is lower

at Mundra at 15% due to other considerations (Adani Logistics has material share). In

contrast, the mix of freight in the hinterland is likely to be more in favor of rail with roads

having a minority share. For such long distances, road is an inferior mode of transport

(chances of theft, pricing is more expensive, Mumbai clearing for Delhi cargo is also

difficult).

Kathuwas ICD: Behemoth in the making; key beneficiary of DFC

Location and markets served. The terminal is located in Rajasthan, about 29 km from

Neemrana and 35 km from Rewari. It is spread over 290 acres and can handle an

eventual capacity of 1.5 mn TEUs. It is strategically located to cover the industrial hubs in

Rajasthan (Bhiwadi, Rewari, Dharuhera, Neemrana). Apart from Japanese and South

Korean industrial belt coming near Neemrana, the terminal can benefit from potential

hubs coming around Kathuwas (steel, fertilizers, cement, oil).

Throughput. The management expects the terminal to get custom notified as an ICD in

coming few weeks. It then aims to handle new export traffic of 2,000-3,000 TEUs per

month and import traffic of 1,500-2,000 TEUs per month in FY2016.

Infrastructure Value Unit

Full length rail lines 4 nos

Covered Export warehouse 10,000 sq. m

Covered Import warehouse 6,000 sq. m

2 Bonded warehouses 8,500 sq. m

Dedicated area for LCL export cargo 3,500 sq. m

Open stack space - loaded 12,000 TEU

Open stack space - empty 2,000 TEU

Separate empty parks - stacking of empty containers 8,000 TEU

Parking area 66,000 sq. m

Parking area 750+ trailers

BLCA rakes of base depot at ICD/TKD 84 nos

each of 45 High Speed wagons (1000 kmph)

for carrying containers

Fully computerised Export & Import documentation

Administrative building - builtup area 8,000 sq. m

housing offices of CONCOR, Customs, Bank,

ATMs, Canteen, Shipping Lines, CHAs,

Transporters, Surveyors & Business Centre etc

Computerised weigh bridges 2 nos

Takeaways from the

Kathuwas visit and

meeting



Connectivity. The ICD is about 25 kms away from the key NH-8 highway and touches

state highway 26.

Services. The present services at the ICD are limited as it is being used as a transshipment

terminal at present. Double-stacked traffic comes from/goes to Mundra and Pipavav. The

second stack of traffic gets off-loaded/loaded at Kathuwas ICD. Apart from exim services,

the ICD also handles domestic cargo for cars (from Maharashtra) and Copper (to Ooty)

where its warehousing service is also being used.

Infrastructure. The ICD has two full length existing rail lines and aims to add three more

lines over time. It has three warehouses, one each for exports, imports and domestic

cargo. The domestic warehouse is spread over 3,000 square meters. Key USP for the

terminal is that it is located on the western DFC and thus can handle 360 TEU capacity

trains. Its 1.3 km rail siding is appropriate for handling long, double-stacked trains.

Container contents. Exports include auto parts (Hero), chemicals, electronics, stones

and diapers. Imports include polyester yarn, chemicals, air conditioner parts, coils,

television parts.



APPENDIX I

Exhibit 24: Rail volumes are concentrated in the north-west-central belt Spread of rail container volumes, March fiscal year-ends (%)

Source: Indian railways, Kotak Institutional Equities

Exhibit 25: Imported container traffic split, 2013

Source: CRISIL, Kotak Institutional Equities

Exhibit 26: Exported container traffic split, 2013

Source: CRISIL, Kotak Institutional Equities

North31%

West16%

Central45%

South6%

East2%

FY2010 - 25 mn tonnes

North33%

West32%

Central26%

South6%

East3%

FY2015 - 38 mn tonnes

CFS55

ICD28

Direct17

CFS34

ICD26

Direct40



APPENDIX II

Exhibit 27: SME business clusters along western DFC gets concentrated either close to ports or in the northern hinterland No. and size of SME clusters in various states - North and West part of India

Source: Ministry of micro, small and medium enterprises, Kotak Institutional Equities

State Cluster location Size category Products Distance from JNPT exact(Km) Distance bucket

Maharashtra Bhiwandi A Powerloom 65 <100

Malegaon A Powerloom 211 100-300

Mumbai A Electronic Goods 56 <100

Mumbai A Readymade Garments 56 <100

Nagpur(Butibori) A Readymade Garments 816 700-1000

Pune A Auto Components 141 100-300

Tarapur, Thane-Belapur A Pharmaceuticals- Bulk Drugs 147 100-300

Gujarat Ahmedabad A Pharmaceuticals 555 500-700

Alang A Ship Breaking 684 500-700

Chotila A Sanitary Fittings 697 500-700

Rajasthan Alwar,S. Madhopur Bharatpur belt A Oil Mills 1,323 1300-1600

Haryana Faridabad A Engineering Cluster 1,466 1300-1600

Gurgaon A Auto Components 1,433 1300-1600

Gurgaon A Electronic Goods 1,433 1300-1600

Gurgaon A Readymade Garments 1,433 1300-1600



APPENDIX III

Exhibit 28: Railway electrification map as of 31st March 2015

Source: Indian railways, Kotak Institutional Equities

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June 2015: Results calendar

Mon Tue Wed Thu Fri Sat Sun

20-Jul 21-Jul 22-Jul 23-Jul 24-Jul 25-Jul 26-Jul

Hindustan Zinc Asian Paints Bajaj Finance Alstom T&D India ABB India Havells India

LIC Housing Finance Cairn India Bajaj Finserv Bajaj Auto Axis Bank

UltraTech Cement Eicher Motors Bharti Infratel Bajaj Holdings & Investment Bharat Electronics

HDFC Bank Container Corporation Biocon Crompton Greaves

Hindustan Unilever JSW Energy Dew an Housing Finance GAIL (India)

Idea Cellular Muthoot Finance GAIL (India) Mahindra & Mahindra Financial Services

Indiabulls Housing Finance PVR L&T Finance Holdings Reliance Industries

Infosys SKS Microfinance Lupin Supreme Industries

Whirlpool of India TV18 Broadcast Rallis India TVS Motor

United Brew eries United Spirits

Wipro

27-Jul 28-Jul 29-Jul 30-Jul 31-Jul 1-Aug 2-Aug

Ambuja Cements Dish TV India Allahabad Bank Colgate Palmolive (India) CESC JK Cement

Century Textiles HDFC Castrol India Dr. Reddy's Laboratories Cholamandalam Investment

Coromandel International Maruti Suzuki Dabur India Exide Industries GlaxoSmithKline Pharmaceuticals

Info Edge (India) PI Industries Godrej Consumer Products Gujarat Pipavav Port ICICI Bank

Jagran Prakashan Pidilite Industries JSW Steel IDFC Karur Vysya Bank

Just Dial PNB MphasiS IPCA Laboratories Larsen & Toubro

KEC International Shriram City Union Vedanta ITC Titan Company

Mahindra CIE Automotive Tata Communications WABCO India Jyothy Laboratories

MRF Thermax Yes Bank Kotak Mahindra Bank

Tech Mahindra Union Bank of India NTPC

Torrent Pharmaceuticals Oriental Bank of Commerce

Petronet LNG

3-Aug 4-Aug 5-Aug 6-Aug 7-Aug 8-Aug 9-Aug

Bharat Forge Bharti Airtel Emami Motherson Sumi Systems Grasim Industries Jaiprakash Associates

Carborundum Universal Britannia Industries Shree Cements Mahindra & Mahindra

HCL Technologies Godrej Properties Siemens

Hexaw are Technologies Tata Chemicals

Orient Cement

10-Aug 11-Aug 12-Aug 13-Aug 14-Aug 15-Aug 16-Aug

Godrej Industries Ashok Leyland Page Industries Amara Raja Batteries

Apollo Tyres The India Cements Tata Pow er Bharat Petroleum Corporation

Source: BSE, NSE, Kotak Institutional Equities

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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

Target O/S

Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) ADVT-3mo

Company Rating 22-Jul-15 (Rs) (%) (Rs mn) (US$ mn) (mn) 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E (US$ mn)

Automobiles

Amara Raja Batteries SELL 870 620 (28.7) 148,539 2,335 171 24.1 27.8 30.9 11.8 15.7 10.8 36.2 31.2 28.2 20.8 17.8 15.7 8.7 7.2 6.0 0.5 0.6 0.7 26.8 25.3 23.3 2.7

Apollo Tyres BUY 193 250 29.4 98,344 1,546 509 19.8 21.6 22.7 (6.9) 9.4 5.0 9.8 8.9 8.5 5.2 5.5 5.4 1.8 1.5 1.3 1.0 1.2 1.2 20.1 18.6 16.8 7.4

Ashok Leyland SELL 81 60 (26.2) 231,512 3,639 2,846 0.9 2.3 3.6 150.7 151.6 56.6 89.6 35.6 22.7 25.1 17.3 13.0 4.5 4.2 3.7 0.6 0.8 1.3 5.4 12.2 17.4 15.0

Bajaj Auto ADD 2,619 2,470 (5.7) 757,823 11,912 289 109.0 115.2 136.2 (2.8) 5.7 18.2 24.0 22.7 19.2 18.5 17.3 14.9 7.1 6.1 5.2 2.0 1.8 2.1 31.1 28.8 29.2 15.9

Balkrishna Industries BUY 682 850 24.7 65,907 1,036 97 48.9 58.3 66.0 (0.4) 19.2 13.2 13.9 11.7 10.3 8.2 7.0 6.0 2.9 2.3 1.9 0.4 0.4 0.4 22.7 22.2 20.5 0.9

Bharat Forge ADD 1,095 1,200 9.6 254,945 4,007 237 32.1 39.2 50.5 53.0 22.0 28.9 34.1 27.9 21.7 19.0 15.7 12.6 7.5 6.2 5.1 0.3 0.7 0.9 24.9 24.4 25.8 25.0

Eicher Motors SELL 21,110 10,100 (52.2) 572,968 9,006 27 227.1 396.3 500.8 55.9 74.5 26.4 93.0 53.3 42.2 51.0 30.7 23.8 22.7 16.4 12.0 0.2 0.1 0.1 26.9 35.7 32.9 44.2

Exide Industries REDUCE 153 170 11.4 129,668 2,038 850 6.4 8.0 8.8 40.9 24.9 10.0 23.8 19.0 17.3 14.1 11.4 10.2 3.2 2.9 2.6 1.2 1.6 1.6 14.0 16.0 15.9 5.0

Hero Motocorp BUY 2,711 3,000 10.7 541,353 8,509 200 127.2 150.8 183.9 20.5 18.6 21.9 21.3 18.0 14.7 16.1 13.7 11.2 9.3 7.7 6.4 2.2 2.8 3.4 44.5 47.0 47.4 25.4

Mahindra CIE Automotive BUY 253 285 12.6 81,748 1,285 323 7.4 8.1 11.6 - 8.7 43.5 34.0 31.3 21.8 21.8 13.7 10.7 4.3 3.8 3.2 — — — 12.6 12.9 16.0 0.9

Mahindra & Mahindra ADD 1,342 1,370 2.1 833,661 13,104 562 54.9 55.6 71.1 (19.9) 1.2 27.8 24.4 24.1 18.9 18.3 13.9 11.2 3.8 3.4 3.0 1.1 1.0 1.3 16.8 14.9 17.0 17.7

Maruti Suzuki BUY 4,191 4,500 7.4 1,266,063 19,900 302 122.9 188.4 246.4 33.4 53.4 30.8 34.1 22.2 17.0 18.9 13.8 10.9 5.3 4.5 3.7 0.6 0.9 1.2 16.6 22.0 24.1 22.6

Motherson Sumi Systems REDUCE 523 425 (18.8) 461,367 7,252 882 11.0 15.0 21.4 8.2 36.0 43.4 47.6 35.0 24.4 15.4 12.7 9.4 13.9 11.0 8.5 0.6 0.9 1.2 30.9 35.1 39.5 12.6

Tata Motors BUY 390 600 54.0 1,246,745 19,597 3,395 41.7 54.8 63.5 (5.4) 31.3 15.9 9.3 7.1 6.1 4.3 4.0 3.4 2.4 1.6 1.3 0.5 0.5 0.5 23.3 27.0 23.4 53.5

WABCO India ADD 5,400 6,400 18.5 102,425 1,610 19 63.6 107.4 158.4 2.7 68.9 47.4 84.9 50.3 34.1 49.2 31.2 21.3 11.9 9.8 7.8 0.1 0.2 0.3 14.9 21.4 25.6 0.8

Automobiles Attractive 6,793,065 106,776 4.4 28.0 21.4 21.2 16.6 13.6 10.5 9.0 7.5 4.6 3.6 3.0 0.9 1.0 1.2 21.8 21.9 21.9 249.7

Banks/Financial Institutions

Axis Bank ADD 590 600 1.7 1,401,245 22,025 2,371 31.0 35.8 40.9 17.3 15.2 14.4 19.0 16.5 14.4 — — — 3.1 2.7 2.3 0.8 0.9 1.1 17.8 17.6 17.4 61.7

Bajaj Finserv ADD 1,677 1,720 2.6 266,853 4,194 159 106.3 121.5 139.5 10.3 14.3 14.8 15.8 13.8 12.0 — — — 2.4 2.0 1.7 0.8 0.8 0.8 16.7 15.7 15.0 1.6

Bank of Baroda ADD 153 210 37.5 337,695 5,308 2,218 15.3 21.4 28.3 (27.3) 39.5 32.4 10.0 7.1 5.4 — — — 0.9 0.8 0.7 2.1 3.0 4.0 9.2 11.7 14.0 15.7

Bank of India ADD 172 220 27.8 114,431 1,799 666 25.7 47.8 52.5 (39.5) 86.3 9.7 6.7 3.6 3.3 — — — 0.4 0.3 0.3 2.9 5.4 5.9 6.3 11.0 11.1 9.0

Canara Bank REDUCE 285 320 12.5 146,599 2,304 515 56.9 49.1 65.8 7.6 (13.7) 34.0 5.0 5.8 4.3 — — — 0.5 0.4 0.4 3.7 3.2 4.3 8.8 7.5 9.3 11.4

Cholamandalam ADD 695 620 (10.8) 99,908 1,570 155 30.2 34.4 41.6 17.8 13.8 21.0 23.0 20.2 16.7 — — — 4.0 3.0 2.6 0.7 0.8 0.9 17.5 17.0 16.7 0.4

City Union Bank ADD 100 110 9.9 59,687 938 597 6.6 7.2 8.3 3.5 9.4 15.1 15.1 13.8 12.0 — — — 2.2 2.0 1.7 1.1 1.2 1.4 16.7 15.1 15.3 1.1

DCB Bank BUY 131 150 14.2 37,204 585 282 6.8 7.2 8.3 12.1 6.4 15.0 19.4 18.2 15.8 — — — 2.3 2.1 1.8 — — — 14.4 12.4 12.6 3.9

Dewan Housing Finance BUY 473 570 20.5 68,961 1,084 146 46.3 54.6 64.5 11.8 17.9 18.1 10.2 8.7 7.3 — — — 1.5 1.3 1.2 1.3 1.3 1.5 16.3 15.7 16.1 5.6

Federal Bank BUY 70 83 17.1 120,812 1,899 1,713 5.9 6.5 7.9 19.7 10.8 21.2 12.0 10.8 8.9 — — — 1.6 1.4 1.3 1.7 1.9 2.3 13.7 13.6 14.8 7.1

HDFC ADD 1,346 1,410 4.8 2,121,415 33,345 1,575 40.4 46.8 55.4 15.6 15.9 18.5 33.3 28.8 24.3 — — — 6.8 6.3 5.8 1.1 1.4 1.7 21.2 21.8 23.0 55.2

HDFC Bank ADD 1,114 1,150 3.2 2,798,769 43,992 2,507 40.8 50.6 59.6 15.3 24.2 17.7 27.3 22.0 18.7 — — — 4.0 3.9 3.4 0.7 0.9 1.0 18.2 18.0 19.3 28.1

ICICI Bank BUY 317 400 26.3 1,838,816 28,903 5,798 19.3 21.9 24.8 13.5 13.6 13.2 16.4 14.5 12.8 — — — 2.3 2.1 1.9 1.6 2.1 2.3 14.5 15.0 15.4 66.3

IDFC BUY 157 210 33.8 250,084 3,931 1,593 10.8 8.2 11.8 (10.2) (23.8) 43.6 14.5 19.1 13.3 — — — 1.4 1.3 1.2 1.2 0.5 0.6 10.4 7.4 9.8 13.2

IIFL Holdings BUY 195 235 20.3 60,782 955 310 14.4 17.5 21.2 54.0 21.0 21.1 13.5 11.2 9.2 — — — 2.4 2.0 1.6 1.6 0.0 0.0 20.1 20.0 19.9 0.7

IndusInd Bank ADD 957 1,020 6.6 557,370 8,761 581 33.9 37.8 45.7 26.5 11.5 20.9 28.2 25.3 21.0 — — — 5.2 3.3 2.9 0.4 0.5 0.6 19.0 16.4 15.1 15.4

J&K Bank ADD 105 120 14.7 50,708 797 485 10.5 16.9 18.0 (57.0) 61.1 6.8 10.0 6.2 5.8 — — — 0.8 0.8 0.7 2.0 3.2 3.5 8.7 12.8 12.4 1.2

Karur Vysya Bank BUY 474 630 32.9 57,301 901 122 37.5 57.8 69.0 (6.5) 54.3 19.4 12.7 8.2 6.9 — — — 1.4 1.2 1.1 2.7 3.0 3.6 12.0 15.6 16.7 1.1

L&T Finance Holdings ADD 73 80 9.5 125,697 1,976 1,718 5.0 5.0 6.0 43.0 0.9 20.3 14.8 14.6 12.2 — — — 2.0 1.8 1.6 1.0 0.7 0.7 13.9 12.6 13.5 5.0

LIC Housing Finance ADD 486 525 8.0 245,418 3,858 505 30.0 35.9 43.3 15.2 19.7 20.6 16.2 13.5 11.2 — — — 3.1 2.7 2.3 1.1 1.3 1.5 18.8 19.4 20.0 16.4

Magma Fincorp ADD 90 130 44.5 21,296 335 236 8.8 10.1 11.3 22.3 14.8 12.3 10.3 8.9 8.0 — — — 1.3 0.9 0.8 0.9 1.1 1.9 10.7 11.7 11.0 0.4

Mahindra & Mahindra Financial BUY 267 320 20.0 151,633 2,383 564 14.8 16.4 19.9 (6.2) 11.0 21.5 18.1 16.3 13.4 — — — 2.6 2.4 2.1 1.5 1.6 1.9 15.5 15.4 16.7 5.7

Max India ADD 548 520 (5.0) 145,981 2,295 266 10.5 10.5 13.9 100.4 0.4 31.9 52.1 51.9 39.4 — — — 4.4 3.5 3.0 1.3 1.3 1.7 8.8 7.5 8.1 2.3

Muthoot Finance BUY 202 250 23.9 80,336 1,263 397 16.9 18.8 23.9 (19.5) 11.3 27.3 12.0 10.7 8.4 — — — 1.6 1.4 1.3 2.9 2.8 3.6 14.3 14.0 16.2 0.9

Oriental Bank of Commerce ADD 175 270 54.2 52,489 825 300 16.6 52.2 62.8 (56.4) 214.7 20.4 10.6 3.4 2.8 — — — 0.4 0.4 0.3 1.9 5.9 7.1 3.7 10.9 12.0 7.0

PFC ADD 263 320 21.5 347,633 5,464 1,319 45.2 44.0 48.9 10.0 (2.7) 11.3 5.8 6.0 5.4 — — — 1.1 0.9 0.8 3.5 3.4 3.7 20.0 16.8 16.5 7.2

Punjab National Bank REDUCE 139 155 11.5 257,876 4,053 1,855 16.5 24.3 28.1 (10.6) 47.5 15.6 8.4 5.7 4.9 — — — 0.7 0.6 0.6 2.4 3.5 4.0 8.5 11.5 12.1 11.8

Rural Electrification Corp. ADD 292 350 19.8 288,536 4,535 987 53.3 54.2 56.8 12.3 1.7 4.7 5.5 5.4 5.1 — — — 1.2 1.0 0.9 3.7 4.0 4.2 23.1 19.9 18.0 9.8

Shriram City Union Finance REDUCE 1,663 1,775 6.7 109,613 1,723 66 84.7 102.4 122.9 (3.9) 20.9 20.0 19.6 16.2 13.5 — — — 2.6 2.3 2.0 0.6 0.7 0.8 15.8 15.1 15.8 0.7

Shriram Transport ADD 880 1,050 19.3 199,657 3,138 223 55.5 66.1 80.2 (2.1) 19.1 21.4 15.9 13.3 11.0 — — — 2.1 1.9 1.6 1.1 1.1 1.3 14.1 15.0 16.0 14.9

SKS Microfinance ADD 537 580 8.0 67,910 1,067 126 14.9 20.1 27.7 130.8 34.6 37.7 36.0 26.7 19.4 — — — 6.5 5.2 4.1 — — — 25.0 21.6 23.7 10.7

State Bank of India ADD 269 320 19.2 2,031,905 31,938 7,566 17.5 21.2 25.6 20.3 21.1 20.3 15.3 12.6 10.5 — — — 1.6 1.4 1.3 1.3 1.4 1.5 10.6 11.8 12.7 65.0

Union Bank ADD 165 170 2.8 105,158 1,653 636 28.0 34.6 48.2 4.8 23.4 39.5 5.9 4.8 3.4 — — — 0.5 0.5 0.4 3.6 3.4 4.8 10.1 11.4 14.4 10.7

YES Bank ADD 823 850 3.3 344,144 5,409 418 48.0 54.2 63.9 7.0 13.0 17.8 17.1 15.2 12.9 — — — 2.9 2.6 2.2 1.1 1.2 1.5 21.3 18.0 18.4 45.9

Banks/Financial Institutions Attractive 14,963,919 235,208 8.6 19.0 18.2 16.5 13.8 11.7 2.1 1.9 1.7 1.3 1.5 1.7 12.7 13.6 14.3 512.9

Price/BV (X) Dividend yield (%) RoE (%)


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Cement

ACC SELL 1,437 1,450 0.9 269,828 4,241 188 45.7 49.9 82.7 (2.3) 9.2 65.7 31.4 28.8 17.4 20.3 17.0 9.2 3.3 3.1 2.8 1.6 1.6 1.6 10.7 11.2 17.0 7.4

Ambuja Cements SELL 247 235 (4.7) 382,620 6,014 1,550 8.5 10.9 13.7 28.0 28.0 25.2 28.9 22.6 18.1 19.3 14.0 10.7 3.6 3.4 3.0 1.2 1.7 1.7 12.7 15.4 17.6 6.6

Dalmia Bharat BUY 590 550 (6.8) 47,894 753 81 1.1 13.1 44.5 208.9 1,061.9 239.2 522.3 45.0 13.3 17.6 7.3 5.1 1.6 1.5 1.4 0.3 0.3 0.3 0.3 3.4 10.9 0.6

Grasim Industries ADD 3,738 4,200 12.3 343,378 5,397 92 191.2 260.4 333.7 (9.9) 36.2 28.1 19.6 14.4 11.2 8.9 5.5 3.9 1.5 1.4 1.2 1.0 1.0 1.0 7.8 9.9 11.5 3.6

India Cements REDUCE 85 95 11.7 26,126 411 307 (0.1) 5.1 9.2 97.2 4,857.9 79.2 NM 16.6 9.3 7.8 7.3 5.8 0.8 0.7 0.7 - 2.5 2.5 (0.1) 4.5 7.5 4.5

J K Cement BUY 604 785 30.1 42,191 663 70 18.1 30.7 62.0 63.9 69.8 102.0 33.4 19.7 9.7 15.4 8.9 6.3 2.6 2.4 1.9 0.7 0.8 0.8 7.5 12.6 21.8 0.2

JK Lakshmi Cement BUY 331 435 31.2 39,002 613 118 14.8 23.1 32.7 54.6 56.6 41.4 22.5 14.3 10.1 15.2 8.4 6.2 2.9 2.5 2.0 0.6 0.6 0.6 13.1 18.6 21.8 0.8

Orient Cement BUY 184 200 8.5 37,768 594 205 9.5 11.9 17.7 92.8 25.0 49.1 19.4 15.5 10.4 15.8 9.8 6.6 3.9 3.2 2.5 0.9 1.1 1.1 21.6 22.7 27.4 0.4

Shree Cement SELL 10,760 7,768 (27.8) 374,862 5,892 35 161.3 277.9 396.5 (15.0) 72.4 42.7 66.7 38.7 27.1 26.5 17.4 13.0 7.2 6.2 5.1 0.2 0.2 0.2 11.3 17.2 20.5 6.7

UltraTech Cement SELL 3,258 2,500 (23.3) 894,058 14,053 274 73.4 89.8 140.1 (1.7) 22.3 56.0 44.4 36.3 23.3 23.6 19.0 13.1 4.7 4.3 3.6 0.3 0.3 0.3 11.2 12.3 16.8 14.9

Cement Cautious 2,457,726 38,631 4.2 34.7 45.9 35.1 26.0 17.8 17.0 11.9 8.5 3.2 2.9 2.6 0.7 0.8 0.8 9.2 11.3 14.5 45.8

Consumer products

Asian Paints REDUCE 843 800 (5.1) 808,891 12,714 959 14.8 19.8 22.9 15.8 33.7 15.5 56.9 42.5 36.8 35.7 27.1 23.4 17.1 14.2 11.9 0.7 1.0 1.1 32.4 36.4 35.1 20.1

Bajaj Corp. BUY 468 510 9.0 69,030 1,085 148 14.9 18.4 21.0 23.7 23.8 14.0 31.4 25.4 22.3 27.7 21.8 18.0 14.1 12.5 10.9 2.5 1.9 2.6 43.6 52.1 52.2 1.1

Britannia Industries ADD 2,857 2,500 (12.5) 342,759 5,388 120 48.1 64.3 77.2 45.8 33.7 20.2 59.4 44.4 37.0 39.1 29.5 24.7 27.5 20.0 15.1 0.6 0.7 0.9 56.4 52.1 46.5 8.6

Colgate-Palmolive (India) REDUCE 2,073 2,000 (3.5) 281,845 4,430 136 41.1 49.1 57.1 13.9 19.5 16.4 50.4 42.2 36.3 34.0 27.5 22.9 36.6 29.7 24.4 1.2 1.4 1.7 81.6 77.7 73.9 5.4

Dabur India ADD 299 280 (6.2) 524,586 8,246 1,757 6.1 7.6 8.7 16.8 24.6 15.5 49.2 39.5 34.2 40.0 31.7 27.2 15.6 12.6 10.4 0.7 0.9 1.0 35.5 35.3 33.2 5.3

GlaxoSmithKline Consumer REDUCE 6,347 6,300 (0.7) 266,927 4,196 42 138.8 165.8 191.7 (13.5) 19.5 15.6 45.7 38.3 33.1 33.4 27.3 22.7 12.6 10.8 9.2 0.9 1.0 1.2 29.7 30.3 29.9 1.2

Godrej Consumer Products ADD 1,225 1,270 3.7 417,153 6,557 340 26.3 33.8 40.9 17.7 28.4 21.1 46.6 36.3 30.0 31.8 25.0 20.9 9.7 8.1 6.8 0.4 0.6 0.7 22.1 24.4 24.8 3.1

Hindustan Unilever REDUCE 921 825 (10.4) 1,991,789 31,308 2,164 17.4 20.3 23.1 5.8 16.9 13.7 52.9 45.3 39.8 38.0 31.7 27.3 53.5 47.1 41.3 1.6 1.6 1.8 107.5 110.6 110.6 21.2

ITC ADD 315 360 14.5 2,520,881 39,624 8,132 11.5 12.9 14.6 7.4 12.2 13.0 27.4 24.4 21.6 17.7 16.1 13.9 8.3 7.4 6.6 2.0 2.2 2.6 28.3 28.7 29.4 35.7

Jubilant Foodworks SELL 1,853 1,250 (32.5) 121,590 1,911 66 16.9 25.9 36.6 10.0 53.4 41.5 109.8 71.6 50.6 47.2 33.1 24.2 18.9 15.5 12.3 0.1 0.2 0.3 18.6 23.8 27.2 8.3

Jyothy Laboratories REDUCE 313 260 (16.9) 56,633 890 181 5.8 8.7 11.0 47.0 50.6 27.2 54.4 36.1 28.4 31.6 23.7 19.9 7.3 6.7 7.0 1.3 1.6 1.9 19.6 24.7 29.4 0.6

Marico ADD 430 420 (2.4) 277,645 4,364 645 8.9 11.8 13.8 20.9 32.6 16.8 48.4 36.5 31.3 31.9 24.1 20.9 15.2 12.2 9.9 0.6 0.9 1.0 36.0 37.1 34.9 8.3

Nestle India REDUCE 5,991 5,800 (3.2) 577,588 9,079 96 122.1 160.4 186.1 6.7 31.3 16.0 49.0 37.4 32.2 27.7 21.1 18.7 20.4 16.4 13.5 1.1 1.3 1.5 47.9 51.1 48.2 11.2

Page Industries SELL 14,737 10,000 (32.1) 164,378 2,584 11 175.7 221.8 281.7 27.4 26.2 27.0 83.9 66.4 52.3 52.1 41.7 32.9 42.4 31.3 22.6 0.5 0.6 0.6 58.0 54.3 50.2 3.1

Pidilite Industries REDUCE 548 510 (7.0) 281,144 4,419 513 10.1 13.4 15.9 13.4 32.7 18.5 54.3 40.9 34.5 36.1 27.0 22.8 12.4 10.4 8.8 0.5 0.7 0.9 24.5 27.6 27.5 3.2

Speciality Restaurants REDUCE 152 165 8.4 7,149 112 47 2.0 3.4 5.4 (50.0) 69.9 59.0 75.6 44.5 28.0 21.6 14.3 10.1 2.3 2.2 2.0 0.7 0.7 0.8 3.1 5.1 7.6 0.1

Tata Global Beverages REDUCE 140 155 11.1 87,972 1,383 631 5.4 6.7 7.7 (1.0) 23.4 15.5 25.7 20.8 18.0 12.3 11.4 10.0 1.6 1.5 1.5 1.6 1.8 2.2 6.0 7.5 8.3 4.6

Titan Company REDUCE 338 350 3.6 300,072 4,717 888 9.3 10.4 12.4 10.1 12.2 18.9 36.4 32.4 27.3 26.0 22.4 18.5 9.7 8.1 6.7 0.7 0.8 0.9 29.4 27.2 26.8 4.8

United Breweries SELL 1,009 700 (30.6) 266,864 4,195 264 9.8 13.9 17.7 14.3 41.6 27.9 103.2 72.8 57.0 44.4 34.6 28.9 14.5 12.4 10.5 0.1 0.2 0.3 14.6 18.3 20.0 3.5

United Spirits BUY 3,578 4,000 11.8 519,910 8,172 145 (11.7) 40.4 84.8 (30.6) 445.0 110.0 NM 88.6 42.2 92.6 40.2 24.3 57.6 25.6 13.7 0.1 0.3 0.4 (8.6) 40.0 42.3 16.2

Consumer products Cautious 9,884,807 155,373 9.7 23.6 17.8 44.2 35.7 30.3 28.8 23.7 20.0 13.8 11.8 10.1 1.2 1.4 1.6 31.1 32.9 33.2 165.6

Energy

Aban Offshore RS 305 — — 17,810 280 58 89.5 97.4 99.9 6.7 8.8 2.6 3.4 3.1 3.1 6.6 6.0 5.8 0.3 0.3 0.3 2.8 1.9 2.0 11.0 9.8 9.5 8.1

BPCL ADD 972 920 (5.4) 702,874 11,048 723 70.3 67.3 68.1 25.2 (4.3) 1.2 13.8 14.4 14.3 8.9 8.4 8.0 3.1 2.8 2.5 2.3 2.3 2.3 24.3 20.3 18.3 20.6

Cairn India RS 167 — — 313,007 4,920 1,875 34.9 20.5 20.8 (46.5) (41.1) 1.1 4.8 8.1 8.0 3.1 4.4 3.5 0.5 0.5 0.5 5.5 4.2 4.2 11.2 6.4 6.3 8.5

Castrol India SELL 496 410 (17.4) 245,500 3,859 495 9.6 12.8 13.8 (3.8) 32.9 7.9 51.7 38.9 36.1 33.7 25.5 23.6 49.4 46.8 47.0 1.5 2.1 2.3 76.0 123.5 130.0 1.8

GAIL (India) ADD 369 450 21.9 468,385 7,362 1,268 26.0 26.2 32.5 (20.2) 0.8 23.8 14.2 14.1 11.4 10.9 9.6 7.7 1.6 1.5 1.4 1.6 2.2 3.0 11.8 11.0 12.7 6.9

GSPL ADD 132 130 (1.8) 74,520 1,171 563 6.5 8.1 9.0 (13.4) 25.5 10.7 20.5 16.3 14.8 9.1 7.9 7.1 2.1 1.9 1.8 0.9 1.5 2.3 10.5 12.0 12.3 1.0

HPCL REDUCE 902 700 (22.4) 305,374 4,800 339 80.6 77.8 77.7 57.7 (3.5) (0.1) 11.2 11.6 11.6 8.6 8.1 7.8 1.9 1.7 1.6 2.7 2.6 2.6 17.6 15.6 14.2 17.5

IOCL ADD 448 415 (7.3) 1,087,237 17,090 2,428 17.2 38.6 40.3 (29.0) 124.4 4.5 26.1 11.6 11.1 13.4 7.2 6.2 1.6 1.5 1.3 1.5 2.9 3.0 6.2 13.1 12.5 8.4

ONGC ADD 285 365 28.1 2,437,031 38,306 8,556 21.8 32.9 36.5 (29.6) 50.6 11.0 13.0 8.7 7.8 5.1 3.7 3.3 1.3 1.2 1.1 3.3 4.2 4.6 10.5 14.9 15.2 19.6

Oil India BUY 436 600 37.5 262,276 4,123 601 41.8 57.5 60.2 (15.8) 37.7 4.6 10.4 7.6 7.3 6.8 4.4 4.1 1.3 1.2 1.1 4.6 5.3 5.5 12.1 15.8 15.3 2.3

Petronet LNG ADD 196 200 2.3 146,663 2,305 750 9.7 11.2 14.3 2.6 14.8 28.4 20.1 17.5 13.6 12.4 11.1 9.1 2.6 2.3 2.1 1.0 1.5 2.0 16.5 14.0 16.3 3.0

Reliance Industries BUY 1,050 1,050 (0.0) 3,088,316 48,543 3,236 70.2 75.8 83.6 3.2 7.9 10.3 15.0 13.9 12.6 12.4 11.2 8.6 1.6 1.4 1.3 0.9 1.0 1.2 11.0 10.8 10.9 60.9

Energy Attractive 9,148,992 143,807 (16.8) 21.5 9.0 13.5 11.1 10.2 8.3 6.7 5.7 1.5 1.3 1.2 2.1 2.6 2.8 10.8 12.1 12.1 158.7



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Industrials

ABB SELL 1,390 750 (46.0) 294,584 4,630 212 10.8 16.7 25.7 29.2 54.5 54.2 128.9 83.4 54.1 53.3 41.2 30.3 10.5 9.6 8.4 0.3 0.3 0.3 8.3 12.0 16.5 1.1

Bharat Heavy Electricals SELL 285 220 (22.8) 697,444 10,963 2,448 5.8 9.5 15.3 (59.0) 64.1 61.3 49.1 30.0 18.6 24.1 16.6 9.2 2.0 1.9 1.8 0.4 0.7 1.2 4.2 6.7 10.1 14.4

Crompton Greaves BUY 196 200 2.1 122,811 1,930 627 2.9 5.9 8.7 (24.7) 100.9 47.6 66.7 33.2 22.5 22.3 15.8 13.3 3.2 3.0 2.7 0.4 0.5 0.5 4.9 9.3 12.5 8.0

Cummins India REDUCE 988 750 (24.1) 273,915 4,305 277 27.1 26.0 32.7 25.1 (3.9) 25.7 36.5 38.0 30.2 36.6 33.3 25.6 9.5 8.6 7.7 1.4 1.3 1.7 27.5 23.7 26.8 2.8

Kalpataru Power Transmission ADD 269 250 (7.0) 41,243 648 153 7.9 6.5 11.2 (1.0) (17.0) 71.0 34.1 41.1 24.0 10.5 9.0 7.7 1.9 1.8 1.7 0.6 0.6 0.6 5.6 4.5 7.3 0.9

KEC International BUY 151 135 (10.6) 38,833 610 257 6.3 7.1 12.1 89.4 14.1 69.3 24.1 21.2 12.5 11.5 8.9 6.9 2.9 2.6 2.3 0.8 1.0 1.6 12.8 13.1 19.5 3.9

Larsen & Toubro ADD 1,854 1,750 (5.6) 1,725,193 27,117 930 36.9 50.5 69.3 (23.9) 36.7 37.2 50.2 36.7 26.8 25.8 20.0 16.0 4.8 4.4 3.9 0.9 0.7 0.9 9.8 12.5 15.4 49.8

Siemens SELL 1,469 650 (55.7) 523,052 8,221 356 16.8 21.9 28.0 170.4 31.0 27.6 87.7 66.9 52.5 51.2 40.1 31.5 10.8 9.8 8.7 0.6 0.4 0.6 12.9 15.4 17.6 7.4

Thermax REDUCE 1,061 850 (19.9) 126,431 1,987 119 21.8 29.3 32.4 5.4 34.6 10.8 48.8 36.2 32.7 27.9 22.7 20.4 5.9 5.3 4.7 0.7 0.7 0.7 12.4 15.4 15.3 0.8

Voltas ADD 308 315 2.2 101,979 1,603 331 11.6 11.8 15.0 56.6 1.3 27.6 26.5 26.2 20.5 24.6 21.5 16.1 4.8 4.3 3.7 0.7 1.0 1.2 19.6 17.4 19.5 12.8

Industrials Cautious 3,945,484 62,016 (23.9) 36.3 41.7 52.3 38.4 27.1 27.2 21.0 16.0 4.3 4.0 3.6 0.7 0.7 0.9 8.2 10.3 13.2 101.9

Infrastructure

Adani Port and SEZ ADD 325 350 7.9 672,024 10,563 2,084 11.1 15.1 19.7 33.0 35.9 30.9 29.2 21.5 16.4 20.9 14.9 12.3 6.3 5.0 4.0 0.8 0.7 0.9 23.7 26.0 27.1 18.0

Container Corporation REDUCE 1,744 1,510 (13.4) 339,977 5,344 195 53.7 62.0 75.1 6.5 15.4 21.2 32.5 28.1 23.2 24.2 19.8 15.8 4.5 4.0 3.6 0.8 0.9 1.1 14.3 15.0 16.3 8.5

Gujarat Pipavav Port REDUCE 229 205 (10.3) 110,490 1,737 483 7.5 9.6 12.1 150.4 28.9 25.7 30.6 23.7 18.9 26.5 20.5 16.4 6.2 4.9 4.0 — — 1.1 22.6 22.9 23.4 2.6

IRB Infrastructure ADD 244 265 8.7 85,648 1,346 351 15.4 19.4 20.9 18.2 25.6 7.4 15.8 12.6 11.7 8.8 8.5 7.3 2.0 1.8 1.6 1.6 1.6 1.6 13.7 14.8 14.2 5.2

Sadbhav Engineering BUY 310 350 12.7 53,242 837 172 6.6 7.3 11.7 (0.3) 9.3 61.3 46.8 42.8 26.5 20.7 17.0 12.0 3.9 3.6 3.2 — — — 10.0 8.8 12.9 1.4

Infrastructure Attractive 1,261,381 19,827 27.8 28.4 26.2 28.8 22.4 17.8 18.4 14.3 11.7 4.9 4.1 3.5 0.7 0.7 1.0 16.9 18.4 19.5 35.8

Internet

Info Edge BUY 889 1,000 12.5 107,038 1,682 120 2.0 9.1 13.7 (75.6) 354.2 50.0 443.4 97.6 65.1 437.7 198.6 64.8 7.6 7.6 7.6 0.1 0.4 0.5 2.3 7.8 11.7 1.8

Just Dial BUY 1,107 1,500 35.5 78,018 1,226 71 19.7 25.4 41.6 14.6 28.7 63.9 56.2 43.7 26.6 41.3 29.8 17.0 11.6 10.0 8.2 0.6 0.8 1.3 23.0 24.7 34.1 10.9

Internet Attractive 185,056 2,909 (22.5) 77.3 59.1 113.5 64.0 40.3 86.3 59.2 30.1 8.9 8.5 7.8 0.3 0.5 0.9 7.8 13.2 19.5 12.8

Media

DB Corp. ADD 320 375 17.3 58,744 923 184 17.2 20.5 24.6 3.2 18.7 19.9 18.5 15.6 13.0 10.2 8.7 7.3 4.6 4.0 3.6 2.4 3.0 4.0 26.0 27.4 29.2 0.2

DishTV BUY 119 112 (5.8) 126,653 1,991 1,066 0.0 1.4 3.2 102.0 4,663.4 129.5 NM 84.7 36.9 18.5 14.0 11.2 7.6 7.6 7.6 — — — 0.2 9.0 20.6 16.7

Jagran Prakashan ADD 132 145 9.5 43,299 681 317 8.0 9.4 10.9 6.6 17.5 16.2 16.6 14.1 12.1 9.3 7.7 6.7 3.7 3.4 3.1 3.0 3.8 4.5 24.2 25.2 26.8 0.3

PVR BUY 858 900 4.9 35,643 560 47 3.6 25.8 34.1 (72.0) 618.2 32.1 238.6 33.2 25.1 20.9 12.9 10.6 9.8 4.6 4.0 0.1 0.3 0.4 3.7 18.9 17.0 1.4

Sun TV Network ADD 258 430 66.6 101,694 1,598 394 19.9 22.1 26.6 4.9 11.1 20.4 13.0 11.7 9.7 8.0 7.2 5.8 3.0 2.8 2.6 4.4 5.1 5.9 24.4 25.1 27.7 9.9

Zee Entertainment Enterprises BUY 407 420 3.1 391,143 6,148 961 8.7 9.3 12.7 (5.7) 8.0 36.3 47.0 43.6 32.0 29.9 26.9 20.0 7.1 6.4 5.7 0.9 1.1 1.4 16.2 15.4 18.9 17.1

Media Neutral 757,175 11,902 6.8 23.1 31.7 34.3 27.9 21.2 17.0 14.3 11.4 5.7 5.1 4.6 1.2 1.5 1.9 16.5 18.2 21.7 45.5

Metals & Mining

Coal India ADD 432 420 (2.9) 2,730,880 42,925 6,316 21.7 28.1 28.9 (9.1) 29.3 2.9 19.9 15.4 14.9 13.0 10.0 9.7 6.8 5.7 4.9 4.8 3.3 3.3 32.2 40.4 35.4 25.8

Hindalco Industries REDUCE 108 120 11.4 222,399 3,496 2,065 12.5 10.7 14.4 0.2 (14.4) 34.6 8.6 10.1 7.5 8.6 7.2 6.1 0.6 0.6 0.5 1.3 1.3 1.3 6.5 5.6 7.1 11.4

Hindustan Zinc BUY 164 205 25.0 693,164 10,895 4,225 19.4 18.1 19.4 17.6 (6.4) 7.3 8.5 9.1 8.4 5.2 4.9 3.8 1.6 1.4 1.3 2.7 2.7 2.7 20.3 16.6 15.9 2.6

Jindal Steel and Power RS 77 - - 70,722 1,112 915 6.9 2.4 4.8 (66.8) (64.6) 97.6 11.2 31.6 16.0 9.4 7.9 6.9 0.3 0.3 0.3 - 2.4 2.4 2.9 1.1 2.1 11.7

JSW Steel BUY 859 1,200 39.7 207,651 3,264 242 75.6 70.4 125.5 14.3 (6.9) 78.2 11.4 12.2 6.8 6.0 6.1 4.9 0.9 0.9 0.8 1.4 1.4 1.4 8.1 7.2 11.8 10.4

National Aluminium Co. SELL 38 40 5.1 98,064 1,541 2,577 4.7 3.8 3.9 81.3 (20.3) 3.5 8.0 10.1 9.7 2.5 3.5 3.2 0.8 0.7 0.7 4.6 4.6 2.6 9.8 7.5 7.4 0.8

NMDC SELL 115 110 (3.9) 453,960 7,135 3,965 16.5 10.4 10.3 3.3 (36.7) (1.4) 6.9 11.0 11.1 3.5 6.5 6.9 1.4 1.4 1.4 7.5 7.5 7.5 21.0 12.8 12.6 3.5

Tata Steel REDUCE 280 300 7.0 272,329 4,281 971 0.0 10.7 22.0 (99.9) 33,033.0 104.8 NM 26.1 12.7 8.0 7.4 6.3 0.9 0.9 0.8 2.9 2.9 2.9 0.0 3.3 6.7 27.2

Vedanta BUY 136 235 72.7 403,495 6,342 3,717 17.1 22.5 29.6 0.8 31.7 31.9 8.0 6.1 4.6 5.1 5.2 4.0 0.9 0.7 0.7 3.0 2.4 2.4 8.0 13.8 15.3 17.2

Metals & Mining Cautious 5,152,664 80,991 (9.2) 10.8 16.2 13.0 11.7 10.1 7.5 7.1 6.0 1.7 1.6 1.4 4.1 3.4 3.4 13.4 13.5 14.3 110.7

Pharmaceutical

Biocon SELL 461 375 (18.6) 92,130 1,448 200 24.8 21.9 25.4 40.4 (11.8) 15.8 18.6 21.0 18.2 14.4 12.1 10.4 2.8 2.6 2.3 1.5 1.7 1.9 15.6 12.8 13.4 5.3

Cipla BUY 675 695 3.0 541,774 8,516 805 14.7 24.5 29.4 (15.2) 66.9 20.2 46.0 27.6 22.9 25.6 17.1 14.4 4.9 4.3 3.8 0.4 0.7 0.9 11.2 16.8 17.6 19.3

Dr Reddy's Laboratories REDUCE 3,848 3,130 (18.7) 655,987 10,311 170 135.6 143.1 153.8 7.8 5.5 7.5 28.4 26.9 25.0 18.5 17.0 15.3 5.9 4.9 4.2 0.5 0.6 0.6 22.8 20.0 18.2 17.1

Lupin REDUCE 1,824 1,650 (9.5) 820,567 12,898 450 53.4 57.1 71.7 30.9 7.0 25.5 34.2 31.9 25.4 22.0 20.0 15.6 9.1 7.3 5.9 0.4 0.5 0.6 30.0 25.4 25.6 48.3

Sun Pharmaceuticals SELL 835 790 (5.3) 2,008,231 31,566 2,406 19.9 23.8 35.3 (27.9) 19.7 48.1 41.9 35.0 23.7 25.1 23.7 16.9 7.6 6.3 5.1 0.5 0.7 1.1 21.3 19.7 23.9 136.0

Pharmaceuticals Cautious 4,118,689 64,739 (2.3) 17.6 30.9 36.9 31.3 23.9 22.8 20.3 15.8 6.8 5.7 4.7 0.5 0.7 0.9 18.3 18.2 19.8 225.9



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Real Estate

DLF BUY 107 210 97.0 189,994 2,986 1,798 3.0 6.7 8.4 (16.4) 120.2 25.8 35.2 16.0 12.7 12.0 9.4 6.9 0.7 0.6 0.6 2.7 1.9 1.9 1.9 4.1 5.0 14.6

Godrej Properties REDUCE 270 245 (9.3) 53,847 846 199 9.6 8.6 12.6 19.1 (9.9) 46.5 28.2 31.3 21.4 31.0 20.1 13.7 2.9 2.7 2.5 0.7 0.9 0.9 10.5 9.0 12.3 0.6

Oberoi Realty BUY 271 325 19.8 89,045 1,400 339 8.8 21.2 23.1 (6.2) 140.2 9.0 30.7 12.8 11.7 19.5 7.8 6.0 2.0 1.6 1.5 0.7 0.7 0.7 6.4 14.1 13.2 1.4

Prestige Estates Projects ADD 223 265 18.6 83,756 1,317 375 8.9 11.5 14.0 (14.4) 29.6 22.1 25.2 19.4 15.9 11.6 10.3 8.0 2.2 2.0 1.8 0.7 0.7 0.9 9.8 10.8 11.9 1.5

Sobha BUY 361 545 51.0 35,391 556 98 24.3 27.5 35.8 (2.7) 13.2 30.2 14.9 13.1 10.1 8.7 7.1 6.1 1.5 1.4 1.2 1.9 1.9 1.9 10.1 10.7 12.7 0.9

Sunteck Realty ADD 298 410 37.6 18,758 295 60 11.4 33.1 95.9 (54.9) 191.0 190.1 26.2 9.0 3.1 21.2 7.0 1.6 1.2 1.1 0.8 3.7 3.7 — 6.5 12.7 29.7 0.2

Real Estate Attractive 470,790 7,400 (11.4) 80.2 33.7 28.4 15.7 11.8 13.4 9.5 6.8 1.1 1.0 1.0 1.4 1.4 1.3 3.8 6.5 8.1 19.3

Technology

HCL Technologies REDUCE 983 850 (13.5) 1,382,147 21,725 1,414 51.5 55.9 59.7 14.1 8.7 6.8 19.1 17.6 16.5 14.2 12.5 11.0 5.4 4.4 3.7 1.3 1.6 1.8 31.4 27.4 24.3 27.7

Hexaware Technologies SELL 273 220 (19.4) 82,246 1,293 302 10.8 13.8 15.2 (14.4) 27.4 10.3 25.2 19.8 17.9 16.2 13.6 12.1 6.4 5.9 5.4 3.5 3.0 3.3 26.2 30.9 31.2 6.6

Infosys ADD 1,103 1,215 10.1 2,533,875 39,828 2,286 53.9 55.2 65.6 13.5 2.4 18.9 20.5 20.0 16.8 15.0 13.6 11.2 5.0 4.4 3.9 2.0 2.0 2.4 25.9 23.4 24.6 71.7

Mindtree REDUCE 1,288 1,300 0.9 107,901 1,696 84 63.7 68.8 80.4 18.7 8.0 16.8 20.2 18.7 16.0 13.9 12.6 10.2 5.4 4.5 3.8 1.3 1.4 1.7 29.4 26.2 25.7 4.3

Mphasis REDUCE 430 375 (12.8) 90,403 1,421 210 32.3 35.2 37.6 119.3 9.2 6.6 13.3 12.2 11.5 7.9 6.9 6.2 1.6 1.6 1.5 3.7 4.1 4.4 12.8 13.1 13.3 0.7

TCS ADD 2,528 2,700 6.8 4,951,762 77,833 1,959 100.3 119.6 137.5 2.8 19.2 15.0 25.2 21.1 18.4 19.2 15.1 12.9 8.6 7.1 5.9 3.1 1.9 2.2 34.8 36.8 35.1 49.6

Tech Mahindra ADD 510 600 17.6 490,586 7,711 865 30.1 32.3 40.1 (6.1) 7.3 24.2 17.0 15.8 12.7 11.3 10.5 8.3 3.6 3.1 2.6 1.2 1.2 1.2 24.3 20.9 21.9 31.8

Wipro ADD 585 630 7.8 1,443,655 22,692 2,467 35.1 37.0 41.8 10.8 5.6 12.8 16.7 15.8 14.0 11.5 10.4 8.9 3.5 3.1 2.7 2.1 2.4 2.7 23.0 21.0 20.8 16.4

Technology Attractive 11,082,575 174,200 8.5 10.7 14.7 21.3 19.2 16.8 15.6 13.3 11.3 5.7 4.8 4.2 2.4 1.9 2.2 26.6 25.1 24.8 208.8

Telecom

Bharti Airtel BUY 439 450 2.4 1,756,458 27,609 3,997 15.1 14.0 17.4 81.6 (7.2) 24.0 29.1 31.3 25.2 8.1 7.5 6.1 2.8 2.7 2.5 0.9 0.6 1.0 9.9 8.8 10.4 37.7

Bharti Infratel SELL 458 350 (23.6) 868,888 13,657 1,894 10.5 13.5 16.2 31.0 28.1 20.0 43.6 34.0 28.3 16.9 15.0 13.0 5.1 5.0 4.8 2.4 2.0 2.5 11.4 14.8 17.2 22.1

IDEA BUY 179 220 22.9 644,169 10,125 3,598 8.8 9.1 6.3 48.6 3.6 (31.0) 20.3 19.6 28.4 9.9 8.1 7.0 2.8 2.5 2.3 0.4 0.6 0.9 16.0 13.4 8.5 14.6

Reliance Communications SELL 69 50 (27.5) 171,615 2,698 2,488 2.9 5.1 6.7 (11.7) 78.0 31.4 24.1 13.5 10.3 7.2 7.0 6.2 0.5 0.5 0.5 — — — 2.4 3.8 4.8 11.1

Tata Communications ADD 470 455 (3.2) 134,007 2,106 285 3.6 6.3 10.9 193.2 73.3 74.3 129.8 74.9 43.0 8.0 7.1 6.4 12.9 10.9 8.6 - - - 11.2 15.7 22.3 3.9

Telecom Cautious 3,575,137 56,195 60.0 7.2 10.6 29.7 27.7 25.1 9.1 8.2 6.9 2.6 2.5 2.4 1.1 0.9 1.2 8.9 9.0 9.4 89.4

Utilities

Adani Power SELL 29 40 39.6 84,112 1,322 2,872 (4.0) (3.2) 0.5 (292.8) 19.8 116.2 (7.2) (9.0) 55.6 8.4 6.8 5.9 1.4 1.7 1.7 — — — (18.6) (17.4) 3.0 4.9

CESC REDUCE 585 600 2.5 77,579 1,219 133 15.0 41.8 54.3 (62.0) 179.2 30.0 39.1 14.0 10.8 11.0 6.7 6.1 1.0 0.9 0.9 1.3 1.0 1.1 2.5 6.7 8.3 4.1

JSW Energy SELL 99 81 (18.1) 162,201 2,550 1,640 8.4 10.9 11.1 22.2 29.5 1.6 11.7 9.1 8.9 6.8 5.4 5.1 2.2 1.7 1.5 — — — 19.6 21.3 17.8 3.2

NHPC REDUCE 19 22 15.5 210,896 3,315 11,071 2.3 2.2 2.2 45.6 (5.2) (0.2) 8.2 8.7 8.7 6.4 6.2 6.3 0.7 0.7 0.6 4.2 3.1 3.1 8.7 7.7 7.3 0.8

NTPC ADD 138 156 13.4 1,134,164 17,827 8,245 12.5 12.3 14.6 (2.5) (1.4) 18.3 11.0 11.2 9.4 11.6 9.8 8.0 1.4 1.3 1.2 2.7 2.7 3.2 12.3 11.9 13.0 10.3

Power Grid BUY 143 175 22.5 747,071 11,743 5,232 9.6 12.3 15.6 11.3 28.3 26.7 14.9 11.6 9.1 11.1 9.1 7.7 2.0 1.8 1.6 2.0 2.6 3.3 13.8 16.0 18.2 6.1

Reliance Power SELL 45 44 (2.8) 126,932 1,995 2,805 3.7 3.6 5.3 (0.1) (1.6) 46.3 12.3 12.5 8.6 16.7 10.1 7.6 0.6 0.6 0.5 — — — 5.1 4.8 6.6 4.5

Tata Power ADD 73 90 23.3 197,438 3,103 2,800 0.5 4.1 5.5 (75.9) 701.7 32.5 141.5 17.7 13.3 8.8 6.9 6.2 1.4 1.4 1.3 1.6 1.6 1.6 1.1 7.9 9.8 4.1

Utilities Attractive 2,740,393 43,074 (1.1) 16.1 25.1 14.1 12.1 9.7 10.2 8.4 7.2 1.3 1.2 1.1 2.2 2.2 2.6 9.4 10.2 11.7 38.0

Others

Astral Poly Technik BUY 376 455 21.0 44,505 700 118 6.4 10.3 14.2 (8.7) 60.4 38.0 58.6 36.6 26.5 27.2 18.4 13.5 7.2 6.2 5.2 0.1 0.2 0.4 16.2 18.3 21.4 0.7

Carborundum Universal ADD 171 200 17.0 32,189 506 188 5.2 8.6 11.7 6.5 64.9 37.0 32.9 20.0 14.6 13.0 9.9 7.7 2.7 2.4 2.1 1.1 1.0 1.4 8.4 12.7 15.6 0.1

Dhanuka Agritech BUY 600 750 25.0 30,012 472 50 21.7 25.8 32.6 16.4 19.0 26.5 27.7 23.3 18.4 21.7 17.4 13.5 7.3 5.9 4.8 0.8 0.9 1.2 29.1 28.0 28.6 0.2

Godrej Industries ADD 404 380 (5.8) 135,532 2,130 336 12.0 17.2 22.4 21.6 43.1 30.9 33.7 23.5 18.0 37.5 20.1 14.8 4.2 3.6 3.1 0.4 0.4 0.4 13.5 16.5 18.5 2.7

Havells India ADD 300 300 (0.0) 187,439 2,946 624 8.1 9.6 11.4 (4.6) 18.2 18.7 37.0 31.3 26.4 20.7 18.4 15.5 10.0 8.6 7.4 0.8 1.2 1.5 28.6 29.5 30.0 5.3

Jaiprakash Associates RS 12 — — 27,973 440 2,432 (9.3) 0.2 0.8 (66.6) 102.4 247.0 (1.2) 51.5 14.9 10.4 9.2 8.9 0.3 0.3 0.3 0.0 0.0 0.0 (22.0) 0.5 1.9 6.3

PI Industries ADD 655 750 14.5 89,485 1,407 136 16.6 21.8 28.6 20.0 31.7 31.2 39.6 30.0 22.9 24.2 19.1 15.1 9.9 7.8 6.1 0.4 0.5 0.6 28.3 29.0 29.8 2.4

Rallis India BUY 256 260 1.6 49,745 782 194 8.1 10.3 13.3 3.5 27.8 28.6 31.6 24.8 19.2 18.3 14.7 11.5 6.1 5.3 4.4 1.0 1.2 1.3 20.5 22.8 24.9 1.1

Tata Chemicals BUY 519 560 7.9 132,206 2,078 255 28.1 40.6 45.8 84.3 44.4 12.8 18.5 12.8 11.3 9.2 7.5 6.5 2.3 2.0 1.8 1.9 1.9 1.9 12.5 16.7 16.7 3.7

UPL ADD 546 550 0.7 234,082 3,679 429 26.9 31.5 35.7 10.4 17.1 13.4 20.3 17.4 15.3 10.9 10.0 8.7 4.0 3.4 2.9 0.9 0.9 1.0 20.7 21.1 20.2 24.6

Whirlpool ADD 748 790 5.7 94,862 1,491 127 16.6 19.9 23.7 71.3 20.0 19.1 45.1 37.6 31.5 27.0 22.3 19.0 10.4 8.1 6.8 - - 0.6 25.4 24.2 23.4 1.0

Others 1,058,029 16,630 (21.7) 242.3 22.5 75.9 22.2 18.1 13.3 11.1 9.9 3.3 3.0 2.7 0.8 0.9 1.0 4.4 13.5 14.8 48.1

KIE universe 77,595,883 1,219,677 (0.2) 19.8 18.1 20.8 17.4 14.7 12.3 10.4 8.7 2.8 2.5 2.3 1.6 1.6 1.9 13.6 14.6 15.4

KIE universe (ex-energy) 68,446,890 1,075,871 4.4 19.4 20.2 22.5 18.8 15.7 13.4 11.5 9.6 3.2 2.9 2.6 1.5 1.5 1.7 14.4 15.3 16.3

Notes:

(a) We have used adjusted book values for banking companies.

(b) 2015 means calendar year 2014, similarly for 2016 and 2017 for these particular companies.

(c) Exchange rate (Rs/US$)= 63.62

Price/BV (X) RoE (%)Dividend yield (%)


Disclo

sure

s


Disclosures

Kotak Institutional Equities Research coverage universeDistribution of ratings/investment banking relationships

Source: Kotak Institutional Equities As of June 30, 2015

Percentage of companies covered by Kotak Institutional

Equities, within the specified category.

* The above categories are defined as follows: Buy = We

expect this stock to deliver more than 15% returns over the

next 12 months; Add = We expect this stock to deliver 5-15%

returns over the next 12 months; Reduce = We expect this stock

to deliver -5-+5% returns over the next 12 months; Sell = We

expect this stock to deliver less than -5% returns over the next

12 months. Our target prices are also on a 12-month horizon

basis. These ratings are used illustratively to comply with

applicable regulations. As of 30/06/2015 Kotak Institutional

Equities Investment Research had investment ratings on 166

equity securities.

Percentage of companies within each category for which Kotak

Institutional Equities and or its affiliates has provided

investment banking services within the previous 12 months.

26.5%

37.3%

19.3%16.9%

3.6%1.8% 2.4%

0.6%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% returns over the next 12 months.

Our target prices are also on a 12-month horizon basis.

Other definitions

Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following

designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s)

and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction

involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient

fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock

and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.

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india daily, july 23, 2015 · per tower per annum remained around the `65,000 mark. we expect this...

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